Here Are 3 Things SaaS Companies Can Do to Beat a Looming Recession

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Talking about recession is depressing. After all, the term is associated with a plethora of troubles such as high unemployment, business slowdown, and bankruptcies.

Based on the Bureau of Economic Analysis‘ third estimate of GDP released this week, the US economy shrunk to an annual rate of 1.6% in the first quarter of 2022. This is slightly more than previous advanced estimates released by the bureau in April that showed a contraction of 1.4%, which was later revised in May to 1.5%.

One thing to note is that the Russia-Ukraine war started in the first quarter of 2022, which significantly disrupted—and still wreaking havoc on—global supply chains. The economic shockwaves of the prolonged war are being felt in food and agriculture industries, energy markets, and business and finance markets. Rising inflation, slower-than-expected growth in consumer spending, and a resurgence of the COVID-19 Omicron variant are other factors contributing to the slowdown.

With one-quarter of negative growth already on the record, is it safe to say that we have a recession coming? Commonly, a recession is defined as two consecutive quarters of negative GDP. However, that’s not written in stone. We still need to wait for what the National Bureau of Economic Research, the arbiter of recessions, has to say about the matter. In the meantime, all we can do is look at how to weather this looming economic storm effectively.

What SaaS Companies Can Do to Survive a Recession

We previously reported on how SaaS companies should brace for a looming recession. Now, with the recent announcement from BEA, it seems we are one step closer to facing a downturn. So, to get more insights into what might happen to the SaaS industry, we looked at historical data published by SaaS Capital on how SaaS companies performed during a recession.

The data compared quarterly revenue and operating income losses of 17 public SaaS companies from 2006 through 2011. This period provided performance trends before the mid-2008 crash, during the recession, and several years into the expansion. While no company became insolvent, the recession at that time did slow the growth of “average” SaaS companies (top companies still performed well regardless of the economic climate). The growth rate fell from 40% to 10%.

SaaS companies can have some amount of insulation from recessions but are not immune to them. With this in mind, there are some areas in the business that SaaS companies should look into in times of an economic slump. Customer churn is one. As clients tighten their spending budgets during a recession, SaaS subscriptions might be the first to be let go.

To address this problem, SaaS companies could offer incentives or discounts to clients to help them tide over the crisis. Doing some tweaking on subscription plans, offering free trials on previously paid features, or including live technical support could all encourage clients to stick to their current SaaS products until economic conditions normalize.

Company expenditure is another. SaaS companies should examine their own spending. Are there any unprofitable products or services that should be dropped? Since cash is tight during a recession, it makes more business sense to focus resources on things that are already working for the company.

Finally, increasing revenue should be a priority. It would be prudent for SaaS companies to start working with clients who might consider closing annual subscriptions or multiple subscriptions to save on costs while the recession hasn’t hit. These efforts will not only increase revenue but also retain loyal customers.