When a major disruption or recession strikes, business leaders must react quickly but thoughtfully. For many, pre-made emergency plans and credit lines provide comfort. Some situations, however, result in a difficult but critical financial assessment: staying afloat means lowering costs.
For software as a service (SaaS) businesses, not all cost-cutting advice out there applies. Often already operating with at least a few remote colleagues or teams, there may not be office or travel expenses to trim.
The recurring revenue model of SaaS businesses also challenges decision-makers to determine what they can continue delivering to subscribers, and what additional needs their subscribers may have under new circumstances.
Despite all this, SaaS businesses still have many areas where costs can be lowered to ride out the rough period, and without sacrificing operations, customer experience, and retention. Here are a few to consider.
Cut nonessentials, and consolidate where possible
Putting event admissions, holiday parties, and other nonessential activities on hold for a while is a standard cost-cutting measure for businesses of all types. SaaS businesses operating out of offices may also want to consider whether a physical group workspace is truly essential going forward.
When forced to work remotely, many business teams discover that not only can they make it work really well for them in terms of productivity, but it’s also easier on the budget than using a traditional office.
Cutting nonessentials also means scrutinizing the “miscellaneous” items in your business’s spending. If it isn’t critical enough to fall under a defined label, how essential is it?
After trimming nonessentials, look for ways to consolidate what’s left. Does your business have separate software for webinars and video conference meetings? If so, perhaps the meeting software can handle webinars for the time being.
A SaaS spend management tool can help you identify potential savings here. Each business will have unique opportunities for consolidation, and a little creativity will go a long way.
Rethink hiring, leave, and tasks
When times are tough, nonessential hiring is obviously put on hold. But what about positions that need to be filled to keep operating?
If possible, find out whether there are freelancers available who can do the work with less impact on your bottom line. Platforms like UpWork, Guru, and TopTal, for example, connect businesses to high-quality talent in various industries and professions, from software developers and sales reps to marketers and customer success managers.
As for nonessential team members already on payroll, many businesses, may try offering voluntary unpaid leave to help keep costs low. If team members can afford to take an unpaid break from work for a while—and your business can afford to let them—this is a viable tactic in difficult times.
Recessions and disruptions may also call for a re-evaluation of the efficiency and productivity of certain tasks.
Perhaps new software recently freed up a lot of time in one department—how is that time spent now?
While micromanagement is a waste of energy in a crisis, it’s important to assess whether tasks produce helpful returns. Overly-detailed reports, long meetings, and repetitive manual tasks can likely be traded for need-to-know communication and automation. Make the most of your employees’ time and talents.
Audit previous and current cost-saving ideas by department
Part of planning next steps for a disrupted SaaS business should be looking back. Check proposed budgets from department heads over the past few years. What was deemed an unnecessary cut last year may be just what’s needed during a recession or crisis.
Have each department evaluate what active efforts have been worth the expense, and which haven’t. Product development may have to set some exploration aside, and marketing may need to take a hard look at whether conversion rates are actually as high as possible.
It may be tough to make changes in challenging times, but flexibility has long been a cornerstone of SaaS business strength.
During this audit, remember that any decisions must be made with a long-term vision. Most SaaS business leaders know retention is cheaper than acquisition, and that recurring revenue depends on loyal customers who grow alongside the business.
Marketing and customer success campaigns aimed at retention and expansion MRR from current customers will likely be more successful and helpful in the long-run than trying to acquire new customers during a potential recession.
Learn from others
At GoSquared, Dayana Mayfield interviewed 25 SaaS founders to learn about their top cost-saving tips. Out of the 25 founders,
- six mentioned automation as a major cost-saver
- six mentioned tracking or often revisiting business spending, and
- five mentioned using business solutions that had promotions, credit programs, or more affordable lower-tier offerings.
The remainder listed keeping financial systems simple, going serverless, using credit cards, reducing meetings, and hiring freelancers or virtual assistants as their cost-savers.
Every business is unique, of course, but there are some obvious common trends in automation and tracking spending. For example billing automation can increase efficiency while automated invoicing feature continues to ensure that you get paid.
Seek support for your SaaS Business
If all else fails—and even if it doesn’t—remember that federal, regional, and local support exists in many forms for businesses. Depending on how widespread a disruption is, SaaS businesses may find help from industry-specific organizations or crisis-specific grants and funds.
Due to the coronavirus pandemic, for example, U.S. businesses have received assistance from a federal stimulus bill, the small business administration, and the Main Street Emergency Grant Programs. State and local governments have also activated emergency funds and created grants.
Even large corporations and non-profits all over the world contributed funds, grants, and resources of their own.
Fortunately, many SaaS businesses have been able to give rather than receive necessary pandemic support. The outpouring is a testament to the SaaS industry’s resilience and innovation.
Revisit growth opportunities
Looking to not just lower costs, but perhaps keep growing? It’s not as impossible as you may assume.
A slowdown in business might be the perfect opportunity to reassess operations and identify areas of revenue leakage.
Once identified, while things are still slow, take some time to come up with solutions.
Spending time and money on identifying and resolving revenue issues may require a bit more cash on hand than business-as-usual requires. To achieve that, consider incentivizing early payments from customers, and reach out to vendors to discuss whether payments can be renegotiated in a way that works for everyone. Do this while keeping in mind, of course, that vendors may be experiencing the same hardships as you.
Keeping a cool head in times of crisis
During hard times, it’s important to practice compassion and empathy with employees, customers, and partners.
“At some point, almost every business is going to need someone to do something for them that goes beyond the scope of any existing contractual or legal obligation,” attorney Chris Sloan points out in a coronavirus-related interview with the U.S. Chamber of Commerce.
A willingness to help will go a long way when your SaaS business needs the same.
It’s going to be quite sometime before a new normal is established, thanks to continuing shifts in consumer demand, consumer spending, and disruptions to in-person working environments, according to a recent article by Alec Levenson, senior research scientist at the USC Marshall Center for Effective Organizations.
“We will get to the new normal eventually. The corporate leaders who recognize these new challenges now and move quickly to adapt to them will put their companies in the best position to thrive throughout the 2020s.”
In times of distress, they say the #1 rule is don’t panic. It can be tempting to slash costs—and the people associated with them—without thinking things through. But with a spending plan in place and level-headed decision-making, SaaS business can gracefully survive disruptions and recessions. Some can even come out even stronger than before.