In this guide, we’ll look at strategies that have worked in periods of heavy inflation and negative growth, and we’ll outline pricing and growth strategies built to handle any market.
Are we heading into the next great recession?
Maybe. Maybe not. (More on this later.)
Regardless, we’re facing a period of global economic instability, with slowed or negative growth and ongoing inflation.
So how should you adjust your growth and pricing strategies to prepare?
In this guide, we’ll look at strategies that have worked in periods of heavy inflation and negative growth, and we’ll outline pricing and growth strategies built to handle any market.
In 2021, inflation rates rose steadily around the globe.
This year, they continue to surge, with many countries seeing record highs. And economists are expecting global inflation to persist for a while.
In other words, your pricing and growth strategies need to take inflation into consideration for the foreseeable future.
To better understand which strategies may work well, we don’t have to look very far.
The previous 12 months provided us with a unique view into how SaaS and software companies fared in the midst of elevated inflation.
First, let’s take a look at the software market in 2021.
ChartMogul used data from their customer base of software companies to reveal a slowdown in startup growth last year (and this year, as well).
Companies with monthly recurring revenue (MRR) under $10K saw the deepest drop off in growth, as well as companies with the smallest average revenue per account (ARPA).
“As consumers felt the pain, growth initially slowed down for B2C companies i.e. those with lower ARPA. But recently, we are also seeing slowing growth in the B2B segment and startups with higher ARPAs,” the report reads.
Overall, we saw SaaS and software companies hesitating to raise prices and buyers hesitating to buy.
So was decreased growth inevitable?
Not according to our data.
To see what happened when companies raised their prices, we pulled a random sample of 271 global SaaS and software sellers using FastSpring to process transactions over the past year. We then looked at what happened to growth and revenue for companies that raised prices — and those that didn’t.
We found that 37% of software sellers raised their prices over 10% between Q1 of 2021 and Q1 of 2022. And those that did increased their revenue by 20% to 33% more than companies that kept their prices the same.
When we looked at overall growth, we found that companies that raised prices in the last year on average saw 15% higher growth than companies that left prices unchanged.
Whatever churn a company experienced as a result of a price increase was consistently offset by the increased revenue generated by the increase.
On average, companies seemed to choose 20% as the amount they increased their prices.
We saw the biggest increase in price for transactions over $500, with an average of a 34% increase.
Companies with less expensive products increased prices the least.
There was no statistical difference in growth or revenue based on the location of the companies in our study.
SaaS companies (and FastSpring’s user base in general) often have customers from all over the world, so this finding is consistent with our expectations.
In SaaS, it matters less where your company is headquartered. What matters is where your customers are located. And if your customers are all over the world, it pays to understand what’s happening globally.
Our B2B sellers were more likely than B2C sellers to raise their prices to offset inflation. In fact, 42% of B2B sellers raised prices in the last year — compared to 34% of B2C sellers.
Interestingly, B2C sellers that raised prices actually saw higher growth than our B2B sellers, even though B2C sellers were less likely to have raised their rates.
Companies with predominantly B2C sales that raised prices saw a 31% increase in their year-over-year revenue growth, while B2B sellers saw a 23% increase.
While intuition might suggest that B2C buyers would be more sensitive to price changes than B2B buyers, our data suggests the opposite, which may imply that B2C companies are more likely to under-price their products relative to their perceived value to buyers.
According to Crunchbase data, venture funding decreased in 2009 for everything but seed rounds. In the U.S., Series A, B, and C round investments dropped 10% to 46%.
Globally, while the number of companies raising seed funding increased, series A, B, and C round investments decreased between 27% and 28%. Crunchbase explains that one-third fewer early stage startups were funded in 2009.
Funding began to increase again in 2010, but it took until 2011 for the investment levels to bounce back to where they were in 2007.
“Today, as then, companies are advised to plan for two years without raising new funding,” Gené Teare writes for Crunchbase. “All startups have to throw out previous business plans, reassess expenses, sales projections and risks.”
Pulling from different data, venture capitalist Tomasz Tunguz saw a steady number of deal counts but smaller investments. Once again, seed rounds recovered the quickest, while series C was hit the hardest. Between 2008 and 2009, series C funding dropped 40%, from $14M to $8.5M.
Tunguz explains: “In a more challenging financial environment, startups typically burn less, so they grow less quickly. Slower growth means slower appreciation in company value, so the valuation multiple on ARR should be less. At least that’s my theory.”
In all circumstances, if you’re raising your prices, tie it back to increased value for your customers. If you have a sticky product, customers will be willing to pay more if they see the increased benefit of your product to their company.
The bottom line is: Don’t be afraid to raise prices, but always tie your choices back to customer value.
The trends we see suggest that increasing prices is an effective way to at least protect yourself from the negative growth many SaaS companies are struggling with in this environment of elevated inflation.
And it’s not too late.
If you haven’t raised prices, the difficult business truth is that right now is probably the best time to make a change.
Gaining new customers is only going to be more difficult in the coming months and years.
FastSpring helps SaaS and software companies grow faster. As a merchant of record, we take responsibility for every part of your payments process — including sales taxes, VAT, payment compliance, fraud detection, payment processing, localization — and more. Our goal? To free you from the complexity of payments, so you can get back to doing what you do best — building great software.
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