Where SaaS Stands Today: Benchmarks and Lessons from 17,479 SaaS Companies with Profitwell

[FOREIGN] Let's get things moving here. So 7 weeks ago, all of us were basically thrown into, um, just a complete world of indecision. And I know that's a little bit of an understatement of the century for some of you. Um, it's probably a little bit of an overstatement for some of you as well. Um, but what's really kind of fascinating is what I saw, at least as an operator, as an executive out there, is that, um, On one side of the spectrum, you had VCs, founders, etc., saying that this was the end of the world, you gotta batten down the hatches for 36 to 48 months. On the other side of the world, we saw a lot of folks saying like, oh, this is only gonna be like 4 to 6 months of pain, everything's gonna be fine, and then there was just a bunch of advice in between. But what's really kind of fascinating is, you know, as an operator, it's really, really hard to make decisions when there just isn't any concrete data, but your board, your company, your team, they're all looking to you to actually make these decisions. And so we're in a bit of a unique position because of the data that we're sitting on, where we could both selfishly, but also for our user base and just the greater community here, we could actually dig into the data and understand how hard has the world of SaaS been hit, how hard has the world of subscriptions been hit, and just everything in between. And so the framework for the conversation today that we're going to be walking through is basically this idea where I want to give you some data to basically guide these decisions moving forward. To help you kind of freak out a little bit if you've been a little too comfortable, help you relax a little bit if you've been freaking out too much, and then also really show you what the companies that aren't in obvious positions to do well in this market— they're not the Zooms, they're not the Slacks, they're not these other companies— what they have been doing in order to thrive, just not survive within this market, even though they're not one of the obvious verticals that are going aggressively into growth. And so we're going to walk through that the next 20 minutes. We're going to be going pretty quickly. And so I'm going to share my email address at the end. So if you want any of the supplemental information that I reference, Um, but just to kind of start things off, like, who in God's name am I to kind of talk about this? For those of you who don't know, Patrick Campbell, CEO, founder of a company called ProfitWell. Um, my background's in econometrics and math. Uh, so I started my career working in US intelligence in DC. Uh, then I worked at Google basically using data to hunt bad guys and gals when I worked at NSA, and then using, you know, a lot of times very similar data to hunt money when I was at Google. Um, and then I started ProfitWell about 7 years ago. And at ProfitWell, we have a couple of different products. Um, our core product is basically, um, free subscription and SaaS financial metrics. So you plug in your billing system, Zoho, Stripe, Paddle, Chargify, Chargebee, whatever you're using, and basically get free access to all of your foundational financial reporting, your cohorts, all that kind of fun stuff. And then we enrich your data for free with Clearbit and FullContact, which gives you the ability to segment on anything that you want. And we give this all away for free for a few reasons, which is the topic of a whole other session that we could go into. But the way we make money is we have a couple of different products that then uses all this data that we're sitting on to basically optimize things like churn, SaaS pricing, etc. And That's not really the important piece here. What's kind of cool though, and the important piece I'm trying to get across is, right now we have over 20% of the entire SaaS and subscription market using one or more of our products. And so that gives us this huge bevy of data that we're able to basically mine and aggregate to understand what's working, what's not working, and that's basically what was the impetus for, you know, what we've been doing the past few weeks to both understand ourselves, but also understand for our user base here. And so we're gonna walk through the data at a high level, and then we're gonna go through like the details of what's been working and what hasn't been. But first off, Let's talk about the ProfitWell Index. So what we essentially did is we took all of the companies on ProfitWell and we started cleaning everything out, right? We took out all the outliers, both on one end or the other. We took out, you know, all of the companies that didn't make sense to include in this data. And we were left with about 15,000 different subscription companies, not just SaaS companies, but subscription companies, and basically did a bunch of statistical analysis to understand what was going on with that data. And we put together a couple of indices. So very akin to like a stock index where we were tracking overall growth of a particular market over time. and then breaking down what was the daily new revenue and the daily lost revenue of certain verticals within, within these cohorts. And what we found was, was really promising, at least in understanding the market and understanding kind of where we are. And as we update this every single day, basically understanding like how the markets have kind of shifted over the past 4 weeks. And so first off, let's look at what's the aggregate of the growth in the market looking like. And what we found is when we look at all of subscription companies, so just more than just SaaS, and the reason I'm sharing this is to give you some context on how SaaS is doing versus, you know, the rest of of the market, we found that subscription companies aren't doing too hot. They started to flatten a bit and there's been a lot of contraction in certain verticals. So to give you some context here, what you're looking at is basically all the subscription companies in this index, their growth since January 1st, 2019, and we're indexing it since we're not sharing like the exact dollar figures here, but it's tens of billions of dollars in revenue. And what you'll notice is, is all of a sudden COVID came and what's really obvious and intuitive is there's definitely this big hit. Now, what's kind of cool is that when we zoom in on this, we can actually see— so this is the same data, but just since January 1st, 2020— is that there's been a bit of recovery, and then there's a little bit of an uptick here. We're gonna have to wait a few days, if not a week, to see like how strong that is. But the basic premise is, is that, you know, we definitely saw this giant impact. And when we start to break this down, thankfully for 99% of you on the call, most of this was actually driven by D2C, so direct-to-consumer subscriptions. And we look at just those products, basically any products that had to do with going outside or were 1 degree or 2 degrees from going outside, basically just got hit majorly. And you can see this contraction in the market, which frankly, we haven't seen in the history of the past 10 to 20 years. Even 2008, and not all the companies even existed in 2008 within this dataset, but even when the companies that did exist, there wasn't this much of a contraction. Because again, this is kind of a, you know, the word of the day is unprecedented situation that's basically happened. Now, when we look at B2B, which is, you know, the most important here, what we've noticed is that B2B has actually been quite protected. It's not doing amazing, but it's not doing terribly. We've seen over the past, you know, 12 months, you know, you got a little bit of a dip, obviously, with the holidays, and then all of a sudden in the age of COVID we're not moving in that predictable up and to the right fashion that B2B tends to do, but what we've started to see is that basically we've had this flattening off. Now, what's interesting about that as an operator, when I look at this, I wanna say, okay, well, we don't have to make that many changes. But then I also am thinking, well, you know, B2B is a second order or a third order impact vertical. So maybe more is coming. And this is why, you know, economists, they only make predictions in the past. They don't make them in the future. But the most interesting thing to kind of think about is that when we start to dig deeper into this data, we're starting to see a little bit more of a narrative that, you know, should probably get you to not freak out, but be a little bit more concerned and make some changes if you haven't already. Because when we start to look at new revenue, as well as the lost revenue, we're actually seeing new revenue accelerate a bit. As a lot of us have kind of reacted to what's been happening in the market in a number of different ways. And then that churn revenue was really dramatic at first, and now it's starting to recover a bit. So this is a different visualization here. This top line, this is new revenue, so upgrades and new. The bottom line here is churned and downgraded revenue. And then these dotted lines are basically the average of the daily of those in 2019. So the nature of this is you always want to be better than the day before, right? And as you can see in the aggregate, basically we were better than the day before. For the most part, and then all of a sudden on the new revenue, all of a sudden we had some of this acceleration. And these bumps here are basically the first of the month where most contracts in B2B, or a lot of contracts will start or end. But on the other side, for those of you who are kind of skipping ahead, obviously this is problematic in what's happening because there was this initial like, holy cow, we need to like cut as many costs as possible. And then all of a sudden we're starting to see this flattening out. Now, is this gonna go up? Basically back to like pre-COVID normals? Is this gonna continue to go down? We're gonna have to wait and see a bit, but there's definitely been an impact here and not every industry or not every, you know, basically sub-vertical has been impacted. But it's one of those things where when we look at the net, it's not amazing. Again, it's not great, but it's not absolutely terrible. Because when we look at the net daily growth now for the B2B market, we can actually see that there's definitely this downward trend that happened the past 8 weeks, but all of a sudden you're seeing this flattening out. And so when I look at this data, and, you know, I've been digging into this, and we've been studying, you know, past, you know, past downturns and even shocks that happened in 2012 and 2014 for short amounts of time. When I look at this, I think, okay, well, the fundamentals of the US economy and even the global economy weren't amazing. But they were okay, if not pretty good before this. And when you think of different crashes, there's really only two reasons that we've had crashes. One is a credit crisis, like 2008, or movement of money crisis, like we saw in the 1987, or even 1929. And basically, this is, this is a third type of situation where we might have those problems based on the global pandemic that's happened. But at least right now, we know that this is going to end at some point. We don't know if it's going to be 6 months, or if it's gonna be 12 months, or even further. And then there's obviously going to be some aftershocks that happen within the economy. But when I look at this, and I studied the data, the thesis that's been kind of emerging from, you know, the subdata that we've been studying is, is that whoever holds on to the most customers, or even users, at the end of this, basically is going to be the winning company within a category, or is going to just end up winning in general. When we looked at 2008, or 2012, or 2014, when there was some little shocks, basically what ended up happening is the companies that were battling incumbents, you know, took advantage of those situations, not only from a value proposition perspective, but also from a positioning perspective, to basically siphon off customers from those incumbents, or those competitors. And they also had, obviously, shored up their churn and things like that. And so this is the thesis that when people are asking us for advice or we're putting in our content that I think is really, really crucial because, again, this is going to end and you want to be in the position where you're holding on and nurturing the most amount of accounts at the end of this. And so there's two really big axes, obviously, to do this. And the first is, you know, obviously shoring up churn. And this is going to come off a bit pedantic, but I think what we found is that these fundamentals that were so crucial 6 months ago, 12 months ago, just inherently in your subscription and SaaS business, those fundamentals are what are going to save you right now or help you win right now. And on the retention side, you know, just as a quick review, and I know it's like super, super basic, you know, you got 3 parts of your retention. You got your delinquencies. These are the people who are not paying you anymore or have gone into a delinquent account. You got your active churn. These are the people who are actively trying to cancel. And then, of course, you have your expansion revenue.

Revenue.

Now, what's, what's kind of fascinating is when we started to dig into the accounts and the companies that are doing well but aren't in obvious verticals to do well, what we found is that from an active churn perspective, they already had a very clear triage system for their cancellations built into their product. And what I mean by that is they were already— and they adjusted this a little bit in the face of COVID— but they already had a situation where when someone wanted to leave, they were either rethinking their offboarding flow right now they were taking the button off the website to cancel. There's a lot of religion around that. And I think in normal times I'm against doing that. But right now you might want to do that at least for a couple of week period, because the reason is, is that you want to be collecting data as to why these people are canceling right now. And you want to do this in normal times. But even in the times right now, you want to understand, like, is this COVID-related? Is this just, you know, hey, we don't like the product related? Or if it's something in between, because what you can then do based on that is making sure that you have some sort of a triage system to not only help predict the future churn. And this can be super simple, like, hey, we notice this vertical of our customer base keeps canceling and it's all because, you know, they serve gyms or something like that. Well, you can get ahead of that if you haven't already and go to them and say, hey, we're going to put you on a pause for 90 days or we're going to do X, Y, Z in order to, like, contain your account. Now, once you understand why in an automated fashion, but even on the phone, depending on what type of business that you're in, there's a couple of options here. Right. So making sure that you have salvage offers So, hey, we're trying to cancel. Well, hey, we'll give it to you for, you know, this price for the next 90 days because, you know, you've been hit or you're trying to cut costs. Or a maintenance plan. Hey, you're not going to be using the product, but we'll retain all of your data and we'll make sure that as soon as you log back in, you can get right back in and start, pick up right where you started or stopped. And yes, it's downgrade money, but it's not churn money, which obviously is much, much better than churn right now. For some of you who have been hit or your customers have been hit dramatically, you might have to consider things like a pause plan. Where basically you just pause them for a certain amount of time, and as soon as they log back in on that pause plan or that maintenance plan and they start to use the product again, they get back upgraded to a paid plan, or even a freemium tier, which is a good time to actually experiment with freemium, and we'll talk about that in a second. Now, some of you are in basically very necessary industries or very necessary products, and so the other option, which has always been on the table, is you can absolutely play chicken in this instance, where you can sit there and say, listen, like, you know, not a lot of people are moving clouds. We're gonna give you a little bit of a salvage offer, but we're not gonna pause your account or pause your paying. We're not gonna put you on a maintenance plan, and we're gonna continue to charge you. Now, you gotta use your best judgment depending on what industry you're in, what type of customers you have. Again, you wanna make sure you're holding onto those leads at the end of this, and that they actually have an active account that they can come back into and have some triggers, because the recovery is not going to be universal. So there's gonna be some verticals that are recovering much, much quicker, so you wanna make sure there's a trigger to actually put them back on a paid plan. So the first thing that we're seeing for those companies that are doing really well, but they're not in a vertical that naturally is doing well, is they already have some sort of a triage system. So make sure that even if you're doing this manually, you've kind of taken care of this. And again, it's a fundamental that you should already have. Another big thing that's like super, super tactical is optimizing your terms. We've consistently found, and I can send you the supplemental data on this, longer-term contracts, very intuitively, they churn at a much lower rate. To give you an example, we've seen this very consistently. There's some variance across like ARPU and ACVs, but basically annuals churn at about a 30% lower rate than monthlies. The other advantage you get with annuals, oftentimes, depending on your structure and who you're serving, is you get cash up front, right? Which a lot of us are very concerned about. What's really kind of fascinating though, is most of us aren't asking for an annual upgrade or an annual plan, all but when they actually sign up. Some of you that are in the enterprise, you're obviously just forcing people to annuals and you're kind of protected for the next few months, assuming that, you know, yes, revenue is probably gonna go down on those new customers, but you hopefully have some of that cash that you can continue to survive on. But for those who are doing monthlies, like you've only asked them when they signed up, which is probably one of the worst times to ask them because they haven't washed over with the product. They haven't gotten used to the product. And so what we normally find works really, really well is going to those customers who have been with you for about 2 months and those who are under about 9 to 10 months and basically just asking them for that annual plan. Like, hey, you've used the product, you're loving it, etc. You know, we have this annual offer so that, you know, we can give you a little bit of a break. And quantitatively, we have found that giving a number of months or giving like a physical or not quite physical, but an actual like tangible amount, um, works so much better than the equivalent percentage. Um, it's not even funny. So if you're saying, hey, 18% or 12% or however percentage that you're giving off, change that to a number of months. Um, and in some cases you can offer up an add-on for free, like, hey, we'll give you priority support. But right now, kind of depending on how hard you've been hit, um, I would recommend like, I probably wouldn't say, hey, give more than 2 months. Um, but if you want to give an extra incentive, don't be afraid to give 3 or 4 months. You gotta be careful not to come off desperate and not to go too deep. But again, you'll be able to use your best judgment. The last piece of the retention side is really your credit card and payment failures. And again, what's kind of fascinating about this is that this is mechanical churn. So yes, 1 out of 5 of these folks who have a delinquent credit card, they are leaving you because they want to leave. And this is kind of their excuse. But the other 4 out of 5, those folks are basically people who didn't even know that their payment failed. And right now you're treating those folks in a very bill collector-y way. You're treating them kind of terribly. You're not reminding them of the value proposition that you have and a whole host of different things. And so it's one of those things where this is a very mechanical piece that with a little bit of work, you can get like an outsized impact. But just to give you some insight here, 30 to 40% of your churn right now is from payment failures. And these are like very credit card-based businesses. So if you're not a credit card-based business, your numbers are probably different. But just to give you some data on this in B2B, it's the largest single bucket of churn that you have in your business right now. And again, you probably haven't optimized it. It's not a top priority ever, you know, within your business, because you're always going after active churn, which has dozens of reasons why people are actively churning. But it's one of those things where this is a really clean place that you can shore up while you're going after and battling that active churn. And as I've kind of already alluded to, you got to treat these folks as a marketing channel. And I— we wrote a book on this. I can send it out to whoever wants it. But it's one of those things where I can't go into all of the details. But to just give you a couple of things that are really, really quick hits. One, don't send out pre-failure expiration emails. So basically like, "Hey, your card's about to expire." Do that in-app. We've noticed the emails in B2B SaaS, they increase active churn by about 10 to 20%. And so let the auto-updaters, let the Amexes, or even let that person fail before you actually start emailing them. In addition to that, make sure your retries are turned on, log into whatever subscription management or billing system you're using. They should be turned on by default, but sometimes in setting up billing, people turn them off. The other thing is, is that, and this is for like 1 out of 25 of you, please make sure you're locking out your current customers who aren't paying you or your people who haven't paid you. It's not a lot of people, but it's worth a 10-minute check. We found like folks missing out on millions in ARR because they basically just didn't check in on those folks who didn't, who weren't paying them. But I could send more resources on this. Those are just a couple of quick hits. Now, on the offensive side, This is where I think that a lot of you can gain a ton of ground and we're coming up on time here a little bit. So I'm going to breeze through this a little bit, but two really, really important concepts. For one, you should be throwing out your basic concept of your ideal customer profile and your value propositions, meaning your team is going after some verticals right now and they're not moving as quickly as you are, who just aren't good for them. They're not good markets anymore. And the value props, especially in a lot of folks' minds, have changed pretty dramatically. To give you some data on this, we run a a lot of studies with our Price Intelligently software to basically understand value. And in March of 2019, and we do this for our content, we ran a study on value propositions where we basically looked at a baseline level product. So I think we used like a sales enablement tool. We collected willingness to pay and likelihood to buy data on that baseline product as a control. And then we applied different value propositions and positioning to that same product and then measured how those different value propositions affected likelihood to buy or perceived conversion. And for two of the value props and positionings in March of 2019, this whole concept of making you money basically increased the perceived conversion by about 20%, and saving you costs basically increased about 10%, which is great above the control. But obviously making you money was winning out here. Now, we measured this a couple of weeks ago after talking to one of our good friends, April Dunford, because, you know, she's the positioning queen out there. And basically what we found is that this is now flipped. And this was the same study, same proportion of respondents, all of the above. Of. And we've seen just a dramatic change in how people are thinking. Now, some of these changes in how people are thinking are going to last a really, really long time. Some of these changes are only going to be in a short 8-week period as people kind of encompass COVID and everything that's surrounding that. But it's one of those things that as a CEO, as an executive, I know I like 3 weeks ago was on 30 sales calls just to hear what people are saying, just to hear how people were reacting to things. just so you can move really, really quickly and make sure that folks are moving. The final piece here is that I think you need to rethink, again, in the spirit of holding on to as many customers as humanly possible, the concept of freemium or freemium-like things. And I know people are religious about freemium. I was very anti-freemium like 4 or 5 years ago, and now we have a giant freemium product. But it's one of those things that the concept— and this was first popularized by the HubSpot crew— is you have two kind of sources of leads within your customer base. You have this river of leads and then you have this pool of leads. And what I mean by these is the river is basically everything that if you turn it off, it's going to stop. So sales, events, demand gen, all of these types of things. And then the pool for the most of us, you know, we've only really had content, right? So SEO kind of keeps working even if you stop publishing. And then there's also freemium for some of us. Now, what's really kind of fascinating is if you really think about it, these rivers have all dried up, right? They've basically dried up completely. And so, yes, a freemium plan, it has to be a scalpel, not a sledgehammer. It's so so much more work than people actually think it normally is. But this might be a good time to at least test like freemium-like things to increase that pool. Again, holding on to as many users or customers as humanly possible. Some of the most aggressive folks out there, like Guillaume from Drift and Gorgias and a couple of other big companies, he has basically been buying out competitor contracts. So going into these sales conversations and saying, well, we'll give you basically the life of your current contract for free. You can extend trials. This is gonna be the most common that we're gonna see is that people are gonna give like 6 9-month trials right now, or put this into a B2B enterprise contract where, hey, there's a 90-day no-pay, or we're going to tack on 3 months to the end of the particular contract for free, or, you know, experimenting with freemium. If you are in a position where you thought maybe we should try it, the important thing to think about is that a freemium strategy or a free strategy, it's more akin to a premium ebook than it is to like, you know, a pricing model. That's the biggest conception. It's an acquisition model. It's not a revenue model to think through. But the biggest thing here is like, remember the play offense. In the context of what's happening here in the market, because as we've kind of belabored the point a little bit, whoever has the most customers or users at the end of this is going to be the winning incumbent or the— just a winning company in general. And with that, I know that was a whirlwind, but hopefully you all got some value. I know the chat's turned off, so hopefully all of you are just ecstatic with something that you learned here, or at least not frustrated. If you have any questions at all, I'm Patrick at profitable.com. If you want to get on the index data, we're updating it literally every single day. If you want your specific vertical, if we have it and it's fairly easily accessible, I can get you some custom data for you specifically. All to support the community. This is just all in our free product. And so it's one of those things where, you know, we want to help the SaaS and subscription world. So feel free to reach out. And Amelia, I don't know if we have time for questions. We got time for one or no?

We sadly do not, but you're sitting there and you're like, he's already over. Oh no, I know, I know.

It's okay.

You're all good. We did save the questions that you guys submitted, so we will shoot them over to Patrick, and I'm sure he will reach out. He has his email here. Thank you for that session. It was like really good, and I was like, oh, you're like so concise.

Well, you told me I only had 20 minutes. Normally I'm a blowhard, so it's one of those things. It all worked out. Thank you, Amanda.

Yeah, thanks Thanks for kicking it off over here on Track 2 at Summit. We will see you guys over at the next session, and we'll see you there. Thanks a lot, guys. See you, everyone. Go!