SaaS Research: Hottest B2B Growth is in Mid-Market
$8,580 per employee is spent on SaaS products annually in the mid-market according to research in SaaS. B2B SaaS vendors who target mid-market companies (100-1,000 employees) may be in the best position to grow.
The research published by Blissfully shows that spend on SaaS in mid-market and SMB companies are growing the fastest. In the enterprise (1,000 employees and up) spend per employee has leveled off. Further, the mid-market and SMB had the highest spend per employee on SaaS with $8,580 and $5,736 annual spend per employee, respectively. Enterprise markets spent $2,047 per employee annually on SaaS.
While every vendor study needs to be taken with a grain of salt, this study is unique because it isolates spend on subscription B2B SaaS. In other words, it explains demand for SaaS in the same terms that CEOs of B2B SaaS use to measure performance: MRR and ARR. The research sheds light on the share of wallet and share of market that a company can attack broken down by department.
A word of caution on these numbers: Blissfully reportedly aggregates data on thousands of companies in the research but the company tends to be focused on tech forward businesses. It’s likely that companies farther behind in the technology adoption curve have lower spend so far.
The survey results of IT leaders said 25% of the companies were SaaS only. SaaS is in early innings and we can expect this number to grow along several dimensions.
1) More and more companies will move towards SaaS-only environments and eliminate perpetual licensing for software.
2) The number of Billing Owner is increasing. In the mid-market, research showed the average number of Billing Owners in the mid-market was 12 in 2019, and in the 2020 research increased to 21. This means that products are addressing new departments and acquisition is decentralizing to the business units themselves, away from central IT top-down decision making.
3) App-to-person growth is a key KPI. The SaaS model benefits from being able to cost-effectively enter a customer with surgically precise use cases followed by a land and expand upsell strategy to grow. Applications should be measured closely for their ability to win new users and new use cases over time to increase subscribed and engaged users within a company.
Freemium is still a powerful force for penetration but there are challenges to the approach. The ratio of free products to paid sits at 3:1 in businesses
The days of sales people verbally promising what your world will be like after you buy their product is rapidly giving way to people trying products themselves and making a decision on the benefits with little or no sales involvement. This bodes well for products that offer a low-friction approach for customers to experience the benefits themselves and having a great customer experience.
However, a lot of great free products fail to get the customers to step up to paid versions successfully and have difficulty monetizing their user base.
Some cases are provided here as example. According to the Blissfully study, MailChimp has among the top market share in SaaS products for the marketing department. However, they are laggards in capturing their share of spending. Quite the opposite of Twilio, which has a relatively low rank in top market share for SaaS products for engineers but has the top share of spend. To optimize this situation, use product metrics to reveal the difference between features that bring new customers in, and the sticky features that keep them as long term users.
The report also points to maturation in the SaaS business model industry. The enterprise SaaS spend has flattened at $4.2M average total annual spend. Further, with larger companies the role of individuals becomes more specialized. With this data, the implication is that more specialized roles use fewer apps more often. This may also point to more involvement in central IT placing policies around the use of certain applications and investments.
There are implications of these trends to your forecasts and plan. If your sales forecast is based on multiplying Average Contract Value by total new customers, then you are likely over simplifying. The implication is that the sales growth rate should be based on the number of subscribers by a combination of use case and company size.
It will serve companies well to understand each use case a customer will deploy on your product. Systematic upsell expansion of use cases will both increase the ACV of the customer (increasing users counts), and it will decrease churn as the diversity of use increases across departments.
What else can you learn from this report? Blissfully breaks down application market share and spend share across the major departments. You can quickly see who are the SaaS market share leaders and SaaS spend share leaders across marketing, sales, HR, customer support and others.