The state of software buying has changed. SaaS spending dipped in the first half of 2020 at the start of the pandemic but has since reaccelerated. During SaaStr Annual 2021, Amanda Malko, CMO at G2, shared a fascinating look at the data that reveals shifting patterns in the way consumers purchase software.
As companies accelerate their digital transformations, the SaaS spend has exploded: In Q2 of 2021, G2 recorded the highest software spend per employee to date. Furthermore, 55% of companies plan to increase software spending in 2022. “The total number of unique products…that a company buys on average, just in the first half of this year is higher than we’ve ever seen –– on average, 124 software products per company,” says Malko.
Yet with this rapid growth comes significant changes in the approach buyers take to purchasing SaaS products. Software is becoming a reflection of our everyday lives, with many of the highest-traffic categories in video conferencing, cryptocurrency mining, marketing automation, and project management software. The trends indicate that there is an influx of spending on solutions that make remote work more simple. As Malko points out, “We’re trying to figure out how to work from home, better together. So video conferencing, marketing automation, project management –– this is the zeitgeist of our culture, reflected in software.”
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Takeaway #1: Software Buying is Happening Faster and Becoming More Frictionless
Reduced friction in the software buying process is a trend that has already been building momentum over the years. Still, the intense acceleration of the buyer’s journey is a surprise, especially since more people are involved in software buying decisions.
Yet it’s undeniable that buyers are making their purchase decisions faster: 55% need less than three months to make a purchase decision of $20,000 or more. And 85% of all decisions are made in under six months, including 82% of buying decisions at enterprise organizations.
"55% of buyers need less than 3 months to make a decision of $20k or more"
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) November 30, 2021
So what’s powering this speedy conversion process? Well, it’s partially due to new ways of buying. For example, there’s a striking preference for third-party purchases, as explained by Malko, “One in five buyers prefers to buy from someone other than you…This is key for thinking about how we go to market.”
Building on this observation, Malko shares that 67% of companies usually engage a salesperson only after they have already made a decision. So SaaS companies now must think about ways to sell to prospects before the sales team even contacts them.
The best way to attack this new type of buyer-seller relationship is to adopt a product-led growth mindset. You can reduce friction and empower your buyers to explore your product with a free trial or a try-and-buy model and make the buyer’s journey more open by designing for multiple front doors. This type of product-led growth takes patience and a willingness to test and iterate, so keep at it until you reach your goals.
Takeaway #2: Building Trust is More Essential, Yet Harder Than Ever
It’s a tough pill to swallow, but the fact is that traditional forms of trust and influence are fragmenting. Just 4% of buyers trust traditional market research firms and analysts the most, and only 38% consider a provider’s website the most trustworthy place to make a buying decision. This means that even if your website looks great and your product ranks high in a market research report, it’s not enough to convince most buyers.
B2B buyers are increasingly relying on their peers to make a purchase decision. In fact, 86% of buyers use peer review sites when buying software. Why? Malko explains, “86% of the people we surveyed look to peers and peer reviews to inform their decisions…they say it makes them more confident in their buying process. It is a critical tool to market to your customers.”
With the context of peer reviews as an essential piece of the purchase decision, it’s a shame to learn that there is a lack of credible, customer-led content that ultimately holds back buyers. According to the data, the top obstacles are:
- Inability to get credible customer content.
- Lack of knowledge of vendor offerings.
- Customer references are difficult to find.
- Not enough reviews on review websites.
To help promote more customer-led content and reviews, treat your clients like your best marketing partners. For example, you can incentivize advocacy by rewarding customers for reviews and support user-generated content and co-marketing efforts.
You should also invest in building a community around your brand. A community can take many forms, but Malko describes the foundational principle of an effective one: “At its core, if you’ve got advocates, you can work your way to building a community, which I define as having a really high value exchange. The value for your end customer in that community should be higher than what they deliver to you.”
Takeaway #3: More Than Ever, Retention is Your Foundation For Growth
Today’s consumers have lofty expectations, and for SaaS, those expectations are astronomically high. According to G2’s survey, 81% of respondents believe it’s crucial to receive ROI within six months of purchasing software. That’s enormous pressure on a software product to deliver a tangible return within a short timeframe, but that is where the bar is for a majority of buyers.
As if the challenge to produce ROI within months isn’t enough, software companies should also be mindful that customers watch renewals closely. In fact, 60% of customers conduct research and consider alternatives before renewing. This means that your team’s work is far from over at the closing of the sale –– your customer service must be on point, your product useful and simple to use.
The good news is that, as long as you are providing the customer with high value and good experiences, you will likely get repeat business and perhaps even more revenue from the same customer. If you manage to earn customer loyalty, you have a good shot at upsells –– one in three buyers prefer to purchase complementary products from the same company.
To make sure you keep customers and revenue in your businesses, pay attention to your NRR (Net Revenue Retention) even more than your ARR. NRR is helpful because it monitors the recurring revenue from your existing customers while accounting for any expansions or upsells, as well as downgrades and cancellations. Invest heavily in retention marketing. Many marketing departments get too focused on customer acquisition but forget to market to the customers they already have.
You’ll also want to monitor churn risk closely. Look for signs of churn and have a strategy in place to fight the trend. And finally, celebrate your customer’s ROI when using your product. Highlight their wins, tout their successes, and make them the hero.
- Adopt a product-led growth mindset.
- Treat your customers like your best marketing partners.
- Focus on your NRR > ARR.