While there’s no one-size fits all approach to successfully grappling with a downturn, our survey found that there has been four key focus areas:
1. Cash runway
Cash is king in a recession. Extending cash runway reduces the chances of you needing to raise investment in a time of limited capital, and extra cash in your reserves acts as a buffer if you do start collecting less revenue. Experts, including Craft Ventures Co-Founder David Sacks, advise SaaS businesses to extend their cash runway to two to four years to give businesses the best chance of riding out the storm.
- 46% of survey respondents have reforecasted, rebudgeted or reviewed how and when they will next raise capital.
- 16% have started to prioritize burn metrics.
- 23% have reviewed or consolidated app and software usage across the company.
2. Headcount planning
Layoffs and hiring freezes have dominated the headlines this year, from Hopin making 29% of its workforce redundant to Salesforce and Meta slowing down on hiring. So it’s no surprise that 35% of our survey respondents have made changes to their existing hiring plans.
But it’s not just about cutting back.
The downturn has given SaaS leaders the opportunity to focus on increasing human capital efficiency – doing more with the resources you have. From automating manual tasks to free people up to focus on higher value to work to focusing on employee retention and engagement, SaaS companies have been looking at how they can improve their employee experience and, in turn, their productivity.
3. Customer retention
In a market downturn, all companies can expect greater churn as customers feel the pinch. SaaS businesses that retain the most customers will therefore come out of the downturn in the healthiest shape.
Not only does retention guarantee revenue flow and extend cash reserves, but with budget freezes reducing sales and marketing spend, it’s considerably easier and cheaper to retain customers than find new ones.
Our survey found that 32% of SaaS companies have prioritized churn/retention to track business performance in 2022. With this, comes a greater focus on metrics like net revenue retention (NRR), renewal rate, churn, and customer lifetime value (CLV), all of which help show the sustainability of your business should revenue from new customers slow.
4. Account expansion
50% of our survey respondents have changed their go-to-market strategy. For some, this has meant placing great focus on collecting more revenue from existing customers to increase expansion revenue.
Why? Because happy customers buy more in a recession and it allows SaaS companies to increase revenue without the expensive task of acquiring new customers.
Tactics for increasing expansion revenue include upselling customers on to a higher subscription package as well as cross-selling or pushing add-on products and features that add value.