Overall revenue growth for Enterprise SaaS stayed constant from Q4 2020 to Q1 2021, at 13%, a very healthy double digit growth rate, But, in other ways, Enterprise SaaS has continued to thrive. Annualized ARPA growth, defined as the growth rate of Average Revenue Per Account, more than doubled from 6% in Q4 2020 to 13% in Q1 2021. Which means, growth is picking up in terms of the accounts and the average revenue per account.
I’d point to this as continued evidence of something we call “subscription resilience” — and why we posit that transitioning to a subscription model is the best way to “future proof” your business.
Recurring revenue models have the advantage of predictability, and are built to weather economic storms. Subscription businesses start every quarter with an established customer base and contracted revenue. This allows them to withstand economic fluctuations better than companies that have to acquire a new set of customers and find new revenue streams every quarter.
And when the going gets tough, subscription companies continue to fare better because they have established, long-term customers, their services are affordable, and they’re able to pivot and adapt far more easily.
This is especially true for Enterprise SaaS. Whereas perpetual software licenses require large upfront capital outlays, as well as large internal IT teams to manage on-premise systems, the costs of SaaS offerings are much more transparent and easy to budget for over time. Plus, Enterprise SaaS responds to customers demands for ongoing value, delivering on-demand innovation and ensuring that customers always have access to the most secure, up-to-date software available.
The future of Enterprise software is SaaS! If you haven’t already made the shift, the journey to usership should start now.
The resiliency of the model hinges on increasing revenue from current customers. According to a recent Subscription Economy Benchmark, on average, 70-80% of the revenue of a successful high-growth subscription business should come from existing customers. To make this happen, we’ve seen companies focus on the following strategic levers to increase retention and grow revenue within the existing install base:
- Upsells and cross-sells. Customer engagement is an important factor in turning ‘light users’ into ‘heavy users’ of the service. This, in turn translates to upsells and cross-sells, resulting in topline revenue and bottomline profit growth.
- Subscription changes. Allowing customers to make changes to their current subscriptions can be key to growth. Research from the Subscribed Institute shows that enabling subscription changes drives overall revenue growth. Companies where 1 in 10 subscriptions has a change after the initial sign-up, the growth rate more than doubles to 20% YoY revenue growth.
- Invest in packaging and pricing to empower the “expand” motion. When looking at SaaS companies, we have found that annual recurring revenue (ARR) size can be considered a proxy for a company’s maturity with pricing and recurring revenue management. Those with higher ARR were stronger at acquiring new customers and upselling to their existing base. Higher ARR players were also stronger at net expansion compared to <$50M ARR companies. So pricing and packaging iteration — over a “set and forget” model — is a key growth factor for subscription companies.
- Improve your analytics. If you don’t have a robust analytics system to capture critical data around retention and churn, you won’t have customer insights you need to predict behavior and make better decisions.