Even renowned economists like Bill Gross are talking about the possibility of an oncoming recession, despite trend evidence that suggest that such discussion might still be overblown.
In contrast to the Great Depression of the 1930s or the current Global Financial Crisis of 2007–2008, businesses today no longer need to have a physical presence to function effectively, and business software isn’t prohibitively expensive. And the SaaS (Software as a Service) revolution has made this feasible.
But before SaaS can save the day, it must first save itself. Check out how SaaS businesses can get ready for the next recession.
Reducing Customer Churn
The first step in dealing with economic instability is to group all of your clients according to their financial stability and assess which companies and industrial sectors are most negatively impacted. Planning for financial health provides a guide for all future steps to reduce turnover.
Once completed, it would be wise to assist the businesses who end up in the “at-risk” category and provide them incentives like free licenses to help them weather the storm. This action could win you devoted consumers who will always support your business.
Many SaaS businesses, like Salesforce and Zoho, went above and beyond during the epidemic by beginning to provide small grants to at-risk businesses.
Saving Money and Enhancing Cash Flow
Large receivables and a shortage of cash equal catastrophe. Through their cash-flow automation technologies, ERP SaaS systems may assist in this situation by ensuring that clients pay on time and don’t neglect to renew their licenses. If necessary, you may even consider giving your debtors incentives like discounts and vouchers to make on-time payments.
It is wise to always have cash on hand, and this is one of the fundamental principles of financial management. It must foresee the impending recession and begin operations before it occurs. Reduce spending on luxuries and set away extra money for necessities.
Plan Your Marketing Budget Carefully
Even R&D expenses and other crucial requirements can sometimes be outrun by marketing resources. Consequently, during a recession or financial crisis, it must be kept under check. More than 20% of the income at businesses like Salesforce, Tableau, and Oracle went into marketing. In comparison, despite having a good cash flow, Zoho drastically reduced its Google Ad expenditure to get through the epidemic.
The challenge, though, is striking a balance between the two. Reduced sales and marketing expenditures result in decreased revenues, creating a vicious cycle.
Eliminate Unprofitable Goods and Services
Many businesses have many MVP dream projects that aren’t profitable enough. It would be wise to stop selling money-guzzlers and concentrate on what is currently performing successfully during trying times. The only exceptions to this rule are goods or services you deem “strategic” that might increase sales in order to make up for the loss.
Model of SaaS on SaaS
Last but not least, SaaS businesses must switch from using legacy products to running their operations on SaaS solutions. Businesses can scale and be flexible with SaaS in a way that is just not possible with traditional software licensing and hardware. An additional concern that comes with a large initial cost is the possibility that future earnings won’t be sufficient to cover it. SaaS solutions, on the other hand, provide a pay-as-you-go alternative that reduces this risk when your firm has changes in sales and revenue growth during a financial crisis.
Diversify Your Products
Your products only serve a select few companies or one industry that may be negatively impacted during a downturn. Services that are required in other risk-free businesses should be considered as well. If your product range is diverse, you won’t be unduly reliant on one industry. Because of this, vertical SaaS organizations might choose to adopt a horizontal mindset.