OnDemand WTP Pricing Research

The SaaS Trends You Need to Know for 2019 | OpenView Labs

Companies Double Down on Pricing Successes
Kyle Poyar, Senior Director of Market Strategy

At the end of last year, I predicted that companies would finally wake up to the importance of pricing. Well, it sure happened. Nearly two-in-three SaaS companies changed their pricing, according to data from over 400 companies who participated in our 2018 Expansion SaaS Benchmarks survey. For companies that did change their pricing, these changes had a substantial positive impact on revenue growth. Two-in-five reported a 25% or higher increase in ARR just as a result of the pricing change. Only 2% said the pricing change decreased their ARR.

So what’s next? As they would with any other successful initiative, companies will double down on what’s working. For later stage companies, they’ll look to hire someone solely dedicated to pricing and packaging strategy. Others will put more resources into monitoring pricing and implementing changes.

Here’s one idea that any company can implement in 2019: create a pricing committee. This committee, which could also be called a Product/GTM committee, should be cross-functional and include key people across departments (Product, Finance, Sales, Marketing, Customer Success). They should meet at least quarterly (my preference would be monthly) to review pricing KPIs, monitor the competitive landscape and make pricing decisions.

The Product Led Growth Index Will Outperform the Market
Sean Fanning, Corporate Development Manager

Earlier this year we crunched the numbers and found companies that implement product led growth (PLG) strategies are growing faster, generating higher gross margins and realizing a greater “Rule of 40” (sum of growth and EBITDA margin) than other public SaaS companies. Public market investors have realized that not all SaaS revenue is created equal – public product led growth businesses trade at higher revenue multiples (valuations) than their peers investing in traditional sales and marketing strategies.

Public PLG businesses grow much more efficiently than their peers as the ease of product use allows for lean customer success organizations, virality contributes to lower cost of acquisition and goodwill they build with their users makes the products extremely sticky. All of these factors coalesce, enabling PLG businesses to acquire and expand revenue more rapidly. Take Box and Dropbox, for example. Both were founded in the mid 2000s and reached scale quickly. But Dropbox, which pursued a freemium, product led growth strategy, has clearly won the file sharing war. The company generates double Box’s revenue, spends a lower share of their revenue on sales and marketing and consequently trades for a far higher revenue multiple.

At OpenView, we believe businesses with PLG strategies will feature prominently among top performers in the software landscape. With the expectation that public market volatility will continue into 2019, investors will search for growth assets that deliver strong permission to believe in continued growth and market leadership. We’re certain that the valuation gap between public product led growth businesses and the rest of the public SaaS landscape will continue to widen as PLG businesses become coveted assets. 2019 will be a breakout year for PLG stocks, and we’ll continue to update our product led growth index to visualize the outsized performance versus other public SaaS companies.

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The SaaS Trends You Need to Know for 2019 | OpenView Labs.

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