With the economy slowing and businesses tightening their belts, the coming months will be make or break for many startups. Business is shifting from a “growth at all costs” mindset to one that is more measured. This means leaders need to know where to conserve cash, where to target spend effectively and which customers are at risk of churn so they can take proactive steps accordingly.
SaaS companies are in a better position than most because they have access to the data that can guide these decisions. They inherently know not only that a customer bought a product, but who is using it, how they’re using it and how often. Management teams should pay close attention to this data for signs of changing customer behavior and watch their sales pipeline for clues about where to target spend and where to cut costs.
At a high level, leaders need to understand — before it becomes obvious — if the slowdown this year is affecting demand at their company and where that’s happening. The goal is to pick up on warning signs early and course-correct as you go, and those signs are often hidden in the breadcrumbs.
Do you know what your customers are thinking?
Not all industries are affected equally, so don’t assume your customers will cut spending this year just because the headlines are bleak.
When thinking about metrics for SaaS companies, it’s helpful to look at how current customers are using your product so you can identify areas of concern and take action. You should also read the tea leaves in your pipeline to understand where to cut back and where to invest.
Every CFO is looking closely at contracts to evaluate areas for cost-cutting. Only those technologies offering real value will survive, so SaaS vendors need to get ahead of this. Traditional customer satisfaction metrics like NPS are a lagging indicator and will not help you respond quickly enough. Instead, look at the following areas to be more proactive:
How much are customers using your product?
You can measure usage trends with points of access, number of registered users, volume of queries or some other metric depending on your product. The point is, as a SaaS company, you should not have to guess who is using your product, when, why, how much and if that’s changing.
Say you have a customer that logs in and uses your product 10 times a day, and that number hasn’t increased over the last year. It’s a sign they are not adding new use cases and creating new value.
If you observe any of these signals, prioritize a conversation with that customer. Reach out to a product champion and propose an adoption plan that will increase usage. Conversely, if you see that customers have been swarming around a particular feature, it may be a sign that feature is particularly valuable in the current climate. Direct your account teams to capitalize on that use case in their pitches.
Is the customer taking advantage of your best product features?
Product analytics tools like Amplitude, Google Analytics or Mixpanel tell you a lot about which features are being used and which are not. If you added some major new functionality recently and a customer hasn’t activated it, if they’re using it in a way that’s less efficient than intended, or if they haven’t applied it to beneficial use cases, now is the time to remind them what they’re missing.
A lot of vendors use customer advisory boards for this type of feedback, but like NPS, they are another lagging indicator that won’t serve you when the market is changing fast. As a SaaS company, you can see what your users are doing in real time. Pay attention and take proactive steps where needed.
Is your product used widely across teams and departments?
Most products start out being used heavily in one department and spread gradually through the company, but that doesn’t always happen on its own. Taking a product-led growth approach, look to see who’s checking the tool out.
You may have a core set of users in one department, but you may see many views from potential users in another. These views provide proof — in real time — that you have an opportunity to expand usage to this additional department.
Additionally, if your company offers a SaaS collaboration tool and its use is restricted to IT and marketing, reach out to a product champion and make the case for broader use.
Reading the pipeline
Not all industries are affected equally, so don’t assume your customers will cut spending this year just because the headlines are bleak. In a slowdown, marketing budgets are often cut first, but spending on cybersecurity is more resilient because it fills a critical need.
Pay attention to the following metrics to assess what’s happening in your business and adjust as necessary, but don’t batten down the hatches if you don’t need to. Use data to see what’s happening now.
Slice and dice the pipeline by geography and industry sector
Are sales cycles lengthening? If so, where and by how much? Is overall deal volume declining?
In the last year, with rumblings of a recession filling the airwaves, it would have been easy for us to cut spending in our new commercial team just as they were settling in and getting up to speed. However, with a regionalized view, we were able to see that commercial businesses in EMEA were continuing to spend. Without that regional perspective, we might have trimmed marketing in Europe unnecessarily, but instead we were able to see the differences between regional markets and adjust accordingly.
It is critical to focus on deep segmentation of indicators to understand exactly where change is happening to get an accurate view of your customers and make adjustments in areas like marketing and headcount.
Where are deals getting stuck in the conversion process?
Look out for changes in the sales approval cycle. If more deals than usual are being held up in finance rather than IT, that’s a strong sign that economic concerns have become elevated and could prompt you to shift your messaging to highlight the ROI and cost-efficiency benefits of your product.
Are you exposed to particular industries where you need to reduce spend?
In the pandemic, shifting resources away from hospitality and dining and toward e-commerce and logistics would have been a smart move. How are the current inflationary pressures affecting your key markets?
To understand this, lean on third-party data that provides a view into both macro economic and local trends, such as foot traffic in stores or retail spending. Data marketplaces from companies like Snowflake, Google and DataBricks make this simple because the information is shared in the cloud. Mash it together with your own pipeline data to see how these trends are affecting your business.
Once the right metrics have been identified and measured, ensure your business teams have what they need to make meaningful, informed changes. Regional and country managers should have the power and autonomy to react quickly to local conditions. It’s one thing to have the data, but it’s quite another to ensure the people who need to act on it have direct access. That means pushing the findings to the edge and entrusting the people on the ground with data so they can make decisions based on local patterns and behaviors. Provide a “single source of truth” so that all managers are working with current, correct information, and make real-time data available as much as possible.
The next 12 months may be challenging, but well-run companies can thrive in a downturn. For SaaS vendors, that means making the most of available signals and using them to get ahead of changes in the market. Watch the economic data, your sales pipeline and empower your leaders to make decisions based on what’s really happening in your customer base.
There’s no reason for a SaaS company to be flying blind, and the more visibility you have, the better decisions you will make.