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Recession - How SAAS companies should prepare

Updated: May 9, 2023

Talks of recession are everywhere and many experts are sounding alarms. The bearish trend in the stock market is also showing that a global recession is on the cards.

The rising interest rates and lower valuations have hit many startups. SAAS companies listed on the stock market have also had much lower valuations this year as compared to their peak times in 2021.

With these updates in the market, it is very important that every SAAS leader should prepare his company to pass these tough times and save themselves to see the time when the recession is finally over.

How to Prepare for a Recession

Different SAAS-based companies will have different strategies to prepare for the recession. Let's look at some of the things companies can do to reduce their costs.

#1 Slashing Marketing Budgets

Most companies go for this first as most SAAS companies see this as something they can turn on and off. Companies above the breakeven point with good cash reserves should avoid cutting too many costs here.

One great strategy is to move budgets from advertisement to SEO to increase organic traffic so that over the long run your customer acquisition costs can decrease. Another benefit is that your search rankings would continue to go up and you won't lose the organic traffic.

Companies with no other option than to cut the marketing budget completely should still consider working on blogging/SEO to keep their search rankings intact.

#2 Software Development Costs

SAAS companies must continue R&D and development costs to increase value for their existing customers by solving more problems for them or even go ahead and diversify their product offerings in the same vertical or completely go into other verticals as well.

In a recession, many good developers will become available and the crazy salary increases that we had during the last year. We may see great developers becoming available at much better salary ranges again. This is a good opportunity for many companies to hire the best developers available in the market.

One strategy that always works best in a recession is to explore hiring remote programmers in other countries. The companies who invest time and effort into finding great remote offshore partners are able to significantly reduce their burn rate.

#3 Sales Teams

Reducing sales teams and cost-cutting in this department is a very tough call for most companies. Companies selling to high-end business customers cannot risk totally disappearing from the market.

Companies can analyze the situation of their sales on a month-to-month basis and depending on the situation can make a call on this by reducing their sales team size. Personally, the sales team would be the last area I would touch especially the best salespeople as it is very difficult to get great salespeople for most companies and they are not easily replaceable.

#4 Cash Flow and Yearly Payments

Companies can offer discounts to customers to switch from monthly to yearly payments. Many customers and verticals have benefited hugely from covid time cash reserves and may be willing to switch to yearly payments.

It is also critical to keep monitoring customer usage activity in the platform to understand if there is a risk of renewing. Ideally, you can attach a risk rate and use basic scoring techniques assigned to customers. No artificial intelligence is needed here, just some basic scoring based on how you think a customer would stay or go based on their activity in the software.

#5 Invest Heavily in Strategic areas

While this advice come off as strange, it may make sense for companies who are beyond the breakeven point to invest in key areas like organic marketing, software development, and sales.

Many other companies will decrease their spending and this can be a good opportunity to rank your site higher on google search keywords, hire the best developers or hire the best salespeople becoming available in the market.

While no one can predict when this uncertainty or recession cycle will be over, one thing is for sure when it's over, the companies who will not only survive but also invested in strategic areas will get the most return on their investment.

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