I’ve bet my career on SaaS. Recently I’ve been observing the current state of SaaS metrics software and have noticed some interesting observations. Software tools that help SaaS founders and product builders measure their metrics are fundamentally changing. Though SaaS continues to grow as businesses, the outlook is dire for standalone SaaS metrics apps providers.
Competition is Increasing
As competition is heating up, indirect competitors’ peripheral businesses are increasing their metrics features. Payment providers, such as Stripe, are differentiating their products by adding basic metrics data tools.
These offerings are still superficial, but they are expected to advance over time. As they continue building their analytic tools, I can assume that Stripe will strive as the leader in building an ecosystem around their payment solutions. However, competition also exists from other services like contract management services, subscription management services, and dunning apps, which are interconnected with the services a typical SaaS business uses.
SaaS Metrics Apps Only Serve Simple Businesses
If SaaS metric companies do their job of helping their customers grow, they are actually becoming more obsolete in their abilities to serve. That’s a terrible feedback loop. Based on publicly available data, you can see that SaaS metrics apps’ penetration in large enterprises is minimal small and trending in the wrong direction as complex businesses are churning at a higher rate than their other customers.
As a result of these forces, these SaaS metric apps are working feverishly to constantly roll out new features to supplement basic metrics. Unfortunately, SaaS metrics is becoming commoditized and is being offered by too many services. The core offering is tunneled out and these additional upsell plans tend to be a very small portion of revenue.
Add-on Products Aren’t the Solution
Many of the new products rapidly brought to market tend to be seen as “features” rather than a stand-alone product offering. Interesting enough, many of these aren’t priced for value to the customers. For example, dunning services for delinquent churn. Dunning’s only value is to retain potentially lost customers.
Standalone or SaaS metrics apps try to charge a monthly subscription in complete juxtaposition to the value received by the end customer. Therefore, charging a monthly subscription fee is illogical with what would be valuable to the customers.
Customers should only pay for this service when it helps to rescue lost subscription revenue. The only company that seems to get this currently is ProfitWell (I have no affiliation, just a fan). They use a percentage recovery model to price their dunning product period. In doing so, they create the perfect incentive alignment with their customers, in such that ProfitWell will only gain when their customers gain. win-win in it’s truest form.
On the flip side, SaaS metric apps which charge a monthly service fee for dunning will see customers typically only last for an average of 4-5 months, at which point they have retained enough customers, and they cancel the dunning subscription.
As a result of these forces, ProfitWell has realized that SaaS metrics are a commodity and need to be done well—in fact, it’s really just a gateway to other value it can bring SaaS metrics, such as data analysis, best practices, and dunning charged as a percentage of recovery.
SaaS metrics apps will continue to be a great niche for very small SaaS companies that sit at $1-2 million in annual revenue (ARR). Most won’t make it above $2 million annually for many years and are unlikely to ever break the $5 million ARR mark. Perfectly respectable achievement, but we shouldn’t have delusions that these are massive markets – a mistake I made myself before doing the research.
Photo by Calvin Lau from Burst