15 Essential SaaS Industry Statistics

The SaaS industry is one of the most vibrant IT industries in the world.

We’ve seen a massive surge in SaaS adoption, market growth, and innovation in recent years. 

In this article, you’ll read the 15 most relevant statistics that will challenge the way you think about the SaaS market. Let’s get started. 

Worldwide Public Spending on SaaS Solutions Will Double From 2019 to 2023

According to an industry report, public spending on SaaS products and cloud-based services is expected to grow from $229 billion in 2019 to over $500 billion by 2023. 

Professional services, discrete manufacturing, and banking are among the most notable public services that will abandon traditional application software in favor of SaaS solutions. 

The same report states that the annual five-year compound annual growth rate (CAGR) in the SaaS industry is 22.3%. 

We can see that SaaS solutions will continue to be implemented at an increasing rate in a variety of industries.

Federal Government Spending Reached $6.6. Billion on Cloud and SaaS Solutions in 2020

Another report has found that US federal agencies have collectively topped their last year’s spending record ($6.1 billion) on cloud-based and SaaS applications. The analysis forecasts a 9-10% annual growth in the implementation of those solutions in the government sector through 2023. 

Since adopting the Cloud Smart strategy in 2019, federal agencies have a mandate to improve their existing services with various SaaS solutions and cloud support services. Civilian agencies have led the charge and accounted for $4.5 billion out of the $6.6 billion spent. 

Some of the top spenders are the Centers for Medicare and Medicaid Services, the Department of Veterans, and the US Air Force

The Highest Number of SaaS Companies Founded In A Year Was Over 15 000, Reflecting the Phenomenal Growth of the Industry

Since 1998 and the emergence of SaaS, the number of newfound SaaS companies has grown from 84 to 15 529 per year. 

Although there was a decline in newly founded Saas companies recently, it’s expected that the number of newly founded SaaS companies will rise again as the overall adoption of SaaS solutions and cloud-based services continues to grow.

One additional factor that may have contributed to the recent decline in the number of new SaaS companies in 2020 is the global Coronavirus pandemic. 

Regardless of these setbacks, the growth rate of new SaaS companies has been remarkable. 

SaaS Spending Increased 26% During the Early Months of the Covid-19 Pandemic

Even before the Covid-19 pandemic, companies were increasingly adopting new software to improve their operations. However, the pandemic has additionally sped up the adoption of SaaS solutions because organizations needed new software to address the challenges of a remote workforce. 

This increase in company spending on SaaS solutions happened in the first four months of the pandemic alone, according to research. 

Interestingly, the same research found that a typical company will start using 10 new SaaS products, while abandoning another 4 every 30 days. 

Overall Company Spending on SaaS Products Has Increased by 50% From 2018 to 2020

When we look at the big picture, we can see that companies have increased their overall spending on SaaS products in 2020 by 50%, compared to spending in 2018. 

Another interesting finding is that companies are spending more on SaaS solutions without acquiring as many new products. 

This suggests that companies often upgrade their current subscription tiers, and not just procure more SaaS products. For example, administrators will add more employees to the user base, or move to tiers with more advanced features.

The Worldwide SaaS Market Will Reach $171 Billion by 2022

SaaS solutions continue to empower businesses across the globe. The global SaaS market is expected to reach $171 billion by 2022, which is roughly a 20% increase from $145.5 billion in 2021. 

One of the main reasons for extensive market growth is that SaaS companies sell their products through monthly subscriptions or the pay-as-you-go model. 

This is far cheaper for their clients than developing their own custom software. This way, they start using the software right away, easily upgrade their subscriptions as well as stop using SaaS products they don’t need anymore.

While clients benefit from cheaper solutions, SaaS companies benefit from recurring revenue. 

Companies Will Invest $25 Billion in Marketing Automation Tools by 2023

More companies are ready to invest in marketing automation tools and the adoption of marketing automation tools is growing each year at a steady pace of 14%. 

Since personalization has become the norm of today’s marketing, customers expect it at every touchpoint. And marketing automation tools enable companies to scale personalization efforts and automate time-consuming manual tasks. 

By 2026, 50% Of Organizations Using Multiple SaaS Products Will Centralize Their Management

Organizations are relying more and more on multiple SaaS products to carry their operations. And as they adopt new SaaS solutions, their management increases in complexity. 

Managing multiple SaaS products becomes more time-consuming and error-prone. To address this problem, organizations will employ a centralized SaaS management system that will allow them to manage all their SaaS products efficiently. 

A SaaS Management Platform (or SMP) allows companies to monitor any suspicious activities with logins, provide more control over user credentials, and streamline administrative IT processes. Additionally, it can track the actual usage of SaaS products and their features. 

Small Companies Spend up to $260 000 on SaaS Products Every Year

Small companies are steadily increasing their yearly spending on SaaS products. In fact, research shows that companies with 1 to 100 employees have increased their SaaS product budgets from $30,000 in 2015 to a staggering $202,000 in 2020.

In other words, small business spending on SaaS products had increased 6.7 times in 5 years when this research was conducted. 

SaaS Companies Invest Over 80% Of Their Revenue in Sales and Marketing in the First 5 Years 

Once founded, SaaS companies don’t expect to keep most of their revenue during the initial 5 years of doing business. 

Instead, up to 92% of their first-year revenue goes into acquiring new customers. Afterward, they invest 80-90% of their revenue in digital marketing and sales. 

SaaS companies that rely on inside sales focus on content marketing, while SaaS businesses that focus on field sales such as industry events invest revenue back in their sales teams. 

10% Of Installed SaaS Products Remain Inactive for 90 Days

Organizations often lack a firm grasp of which SaaS products their employees use on a day-to-day basis, and which products are redundant. 

One analysis found that over 10% of paid and installed SaaS products aren’t actively used for 90 days after purchase. This is a terrible waste of resources for organizations. 

With a proper SaaS management platform, organizations can keep themselves from overspending on SaaS subscriptions as they can easily detect which products are not actively used. 

The Majority of SaaS Companies Are Successful at Keeping Their Churn Rates Below 10%

The survey studied 300 unique SaaS companies and found that roughly two-thirds of them were successful at keeping their churn rates below the 10% rate. 

However, according to the same survey, a fifth of respondents struggle with a churn rate above 15%, which is a severe problem that needs immediate attention. 

To learn more about churn management, read this article

SaaS Companies With Monthly Subscriptions Experience a 14% Churn Rate, Lower Than Those With Annual Billing

SaaS companies’ clients are less likely to churn when they are offered monthly subscriptions instead of annual billing

According to the study, 2+ year SaaS contracts enjoy the lowest churn rates in the industry, varying from 12.2% to 8.5%.

However, when clients have the option of monthly subscriptions, their churn rate is 14% which is 2.7% lower than other contracts lasting under a year and 1% lower than yearly contracts.

Statistically, if you offer your clients monthly subscriptions instead of annual or quarterly billing, you have the best chances to keep them long-term—unless you can get them to sign up for 2+ years right off the bat.

Companies are Wasting Money on Unnecessary SaaS Subscriptions and the Numbers are Doubling Every Year

A 2020 study found that companies waste twice as many resources on orphaned and duplicated SaaS subscriptions every year. 

Duplicated SaaS subscriptions happen when members of the same organization purchase the same subscription independently. Their organization then cannot leverage its volume of users to get a better company-wide deal. 

On the other hand, orphaned subscriptions occur when the billing owner of the SaaS subscription leaves the company, so the company keeps spending resources on software without an accountable owner. 

Data from the study shows that duplicated SaaS subscriptions have increased by 80% from 2018 to 2019. 

Currently, the average number of duplicated SaaS subscriptions is 3.6 per company. Similarly, orphaned SaaS subscriptions have increased by almost 100% for a second consecutive year. 

Overall, duplicated and orphaned SaaS subscriptions represent a senseless waste of resources. 

Companies Replace an Average of 30% Of SaaS Tools They Use 

On average, a company will replace 30% of the SaaS tools they use every year. It’s often because different SaaS providers will offer similar tools to those companies are already using, but with more features or better volume-based deals.

Companies are actively looking for the best deal on a SaaS tool and have no problem replacing their current tools. So if a SaaS provider is no longer as competitive, it can easily find itself among those 30% of replaced solutions. 

Conclusion 

The global SaaS market is growing at a staggering pace and new software solutions will continue to transform organizations across the globe and change the way they do business. 

Ask yourself if your organization fits some of the data we’ve talked about and reflect on what you’ve read today. Then, use it to improve your business.

References:

IDC Worldwide Public Cloud Services Spending Guide
The State of Federal Cloud: Market Briefing
The Rise of Software as a Service (SaaS)
Zylo’s 2020 SaaS Management Benchmarks Report
2020 Annual SaaS Trends – Blissfully Report
SaaS market size worldwide 2022
Forrester Data Marketing Automation Technology Forecast 2017 To 2023
2021 Gartner Research: Market Guide for SaaS Management Platforms
SaaS Statistics Infographic 2021
Statistics for SaaS Companies + SaaS growth
The Hidden Risks of SaaS
The SaaS Report 2019 – Growth, Churn, and Sales Stats 

About The Author
Asaf Darash
Asaf Darash
CEO and founder of Regpack

Asaf, Founder and CEO of Regpack, has extensive experience as an entrepreneur and investor. Asaf has built 3 successful companies to date, all with an exit plan or that have stayed in profitability and are still functional. Asaf specializes in product development for the web, team building and in bringing a company from concept to an actualized unit that is profitable.

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