#1: SaaS growth is slower
The COVID-era boom is over. SaaS companies have maintained most of their gains, but revenue growth is down and churn is increasingly biting.
In Q2 2023, headline MRR grew at an annualized growth rate of 10.4%. This is down from Q1 2022, when growth peaked at 61.8%.
That slower growth is driven by both lower sales, and higher churn.
In nominal terms, we estimate that net new sales are down 36% from their peak, while churn is up 29%.
It's harder to bring new customers in, and to keep them.
#2: Try-before-you-buy is table stakes for your customers
Product-led growth tactics are increasingly being employed in every segment — not just when selling to developers or SMB.
Users are becoming accustomed to trying a product before paying, and only talking to Sales after getting to value. Even enterprise buyers are starting to have this expectation.
#3: Mature markets are more competitive
Regions like the US, UK, and Northern Europe are increasingly competitive, with every company having to fight more for the same target customers. This has manifested in the data as escalating customer acquisition cost (CAC).
But this presents a growth opportunity for companies willing to sell outside those major markets, and acquire more customers at a more efficient cost.
During the COVID-era boom, valuations were heavily based on ARR growth. You could raise funding almost exclusively on that metric.
As early as late 2022, the OpenView SaaS Benchmark’s report found that efficiency metrics like the Rule of 40 and your CAC payback period play a much bigger role in valuations.
Investors do want to see growth, but they're looking at the sustainability and efficiency of that growth.