The SaaS market plays an integral role in how companies operate today. For many SMBs, SaaS tools are the backbone of their businesses, allowing them to be more efficient, save costs, and reach more customers.
Today, new technologies, specifically AI, are changing the SaaS landscape for the better.
The following are the most important SaaS trends you will see in the near future.
Let’s dive right in.
SaaS Trends to Watch in 2024
Companies today estimate that more than 70% of their tech stack and apps are SaaS-based.
Key business operations are either completely or semi-dependant on SaaS tools. We’re moving toward a SaaS-first approach to doing business.
1. Companies expect that 85% of their business apps and tools will be SaaS-based by 2025.
Organizations of all sizes are moving toward a SaaS-first culture when it comes to most business operations.
For that reason, the SaaS industry today is worth around $195.2 billion.
On top of that, BetterCloud estimates that, on average, an organization uses 80 SaaS apps.
Out of those, 21, on average, are custom SaaS apps – SaaS apps that are internally developed, hosted in AWS, and only used by internal users.
However, this overabundance of SaaS apps causes issues too. Currently, 92% of companies give new employees day-one access to all devices and apps.
However, due to the number of SaaS apps used, it takes an average time of 7.12 hours to off-board them from all apps when they leave.
What’s funny about this situation is that this particular problem itself creates a market opportunity. That’s why you’ll find specialized offboarding SaaS apps like Torii today.
Which, in turn, adds to the massive list of SaaS apps already in use.
Therefore, it’s not far off to expect company SaaS app usage to increase continually, with every new potential problem generating a whole new generation of SaaS apps.
2. SaaS sprawl is becoming a serious problem for organizations of all sizes.
In two years, the average number of SaaS apps increased by 4.5% for SMBs.Source
SaaS sprawl refers to the unchecked proliferation of cloud-based SaaS apps within an organization. For every new challenge or monotonous task, organizations adopt a SaaS-first approach.
This leads to excessive SaaS usage which means increasing costs, lax security, and data privacy concerns, among many other issues.
Between 2021 and 2023 alone, the average SaaS portfolio increased by 32%. Even after staffing reductions and tighter budgets, companies continue to increase their SaaS stack.
Currently, SMBs use an average of 253 SaaS apps. SMEs adopt an average of 335 SaaS apps while enterprises use an average of 473 SaaS apps.
This SaaS sprawl has given birth to a concept of shadow IT – SaaS apps purchased, expensed, and used by employees without IT oversight.
There was a steady increase in the percentage of shadow IT between 2020 and 2022. But, we’ve seen a drop from 59% in 2022 to 51% in 2023.
This shows organizations’ charge toward SaaS governance.
Percentage of SaaS tools and apps considered Shadow IT.
While reducing SaaS apps is still a challenge, companies are adopting measures like stricter budget control, formal contracts with vendors, and greater accountability.
That being said, SaaS sprawl is much deeper than most companies realize. According to a TechCrunch case study, SaaS tools are only the tip of the iceberg.
In an organization with 700-3000 employees, they found there were 310-994 SaaS services.
On top of that, there were between 2,197-13,062 identities, 6,333-15,681 accounts, and 38,246-1,676,774 policy assignments.
Think of it as an ever-branching tree diagram becoming more complex and exponentially large with each additional SaaS tool and employee.
While enterprises have already suffered this phenomenon, SMEs and SMBs will do so soon, if it hasn’t happened already.
3. The average SaaS spend per employee is increasing as companies opt for year-long contracts.
Currently, the overall average SaaS spend per employee is $9,643. Enterprises spend the least amount per employee at $7,492, followed by SMEs at $10,045, and SMBs at $11,196.
Enterprises tend to get volume discounts in a lot of cases, working toward enterprise-wide licensing agreements.
That, and economies of scale help reduce the overall SaaS spend per employee. Total spending will, obviously, exceed that of SMEs and SMBs.
That is another reason why companies are now signing up for longer contracts with SaaS app providers. But contracts longer than a year are in decline.
Contracts longer than three years have declined 33% in the last year.
Any contract beyond a year becomes a risk in a lot of ways, especially if it’s longer than three years.
Changing economic conditions, government overhauls, introduction of new technologies; all of these are only some of the reasons why longer contracts are detrimental.
At the same time, contracts shorter than a year are often way more expensive.
One year has become a soft limit for SaaS subscriptions because it gives them an opportunity to negotiate better terms, while also not being tied to the contract for longer.
4. Note-taking and online course SaaS apps will remain in high demand.
Popular Shadow IT SaaS apps between 2021-2023. (Image Source)
Three years ago, Adobe, Calendly, and Grammarly were the top three Shadow IT apps used by employees. But since 2022, we’ve seen a shift toward note-taking and online course apps.
For the last two years, Evernote and Coursera have been the most popular Shadow IT apps.
Last year, on top of those two, Canva was the third-most popular app.
People, in general, are moving toward a more cloud-based living, and note-taking apps allow them to keep track of all their notes simultaneously on all devices.
With so many people shifting to remote and hybrid work, this allows them to access their notes anywhere at any time.
Apps that offer courses have become popular because companies have started to save costs on training by buying online courses for employees. This also works for their employee development programs.
On the other hand, employees tend to spend their development budget on course apps too because it’s easier to manage and much less expensive than traditional training and courses.
Other than that, you’ll see SaaS design apps, project management apps, and other business admin apps like SignNow and DocHub.
Another trend you will see is the rise of AI-based SaaS apps. For example, up until 2022, ChatGPT was nowhere to be found but in 2023, it became the 11th most popular SaaS app.
Right now, a good majority of companies have ChatGPT in the Shadow IT pile. But you’ll see it become a major investment for a lot of companies this year, especially after Sora becomes user-ready.
5. SaaS companies are stepping toward usage-based pricing.
58% of SaaS companies have either adopted or are testing usage-based or hybrid pricing. (Image Source)
For the longest time, we’ve seen a subscription-based model of pricing from SaaS companies.
But over the years, some companies have started to use a hybrid model of pricing that combines subscriptions and usage-based pricing.
Think of it as your internet provider. You pay a monthly subscription fee but if you exceed the fair usage policy limit, you have to pay extra, based on your usage.
That being said, usage-based pricing saw a slight decrease in 2023, but it’s expected to catch up this year.
At any rate, a good majority of companies use hybrid pricing instead of pure usage-based pricing.
For example, Zapier recently announced a change in their pricing methodology, adopting a completely hybrid pricing model while doubling down on their freemium offerings.
Meanwhile, companies like Ahrefs have always adopted a strictly hybrid model.
But, to be fair, a SaaS tool like Ahrefs would miss out on a lot of revenue if it wasn’t on some form of usage-based pricing model because it has a lot of moving components that can be effectively monetized.
At the same time, companies like Atlassian and Figma remain subscription-based companies with no intentions of changing it.
In Atlassian’s Q2 2024 earnings call, Joseph Binz, CFO at Atlassian, mentioned that their seat-based pricing and a shift from monthly to annual subscriptions led to decreased revenue, especially from SMBs.
Despite that, the company remains staunch on its pricing, especially because most of its revenue comes from enterprises.
There has been a decline in the value of SaaS companies over the last few years, especially unicorns. Within one year, the value of fast-growing public SaaS companies went from 46.2x to 11.0x.
Despite this massive reduction in growth rates, there was still reasonable growth.
But still, even the best-performing SaaS companies have witnessed growth stalls in the last 12 months.
ZoomInfo’s yearly revenue growth reduced from 57% to 29%, Snowflake went from 98% to 60%, and PLG companies went from 45% to 29%.
In Q1 2022, CAGRs of private SaaS companies were at an average of 60%, plummeting to 8% in Q3 2023.
7. SaaS companies are now considered efficient when they’re earning $300,000 per employee.
According to Jason Lemkin, CEO and Founder of SaaStr, the new normal for SaaS companies is 700 employees when the company reaches $200,000,000 in ARR.
That amounts to $300,000 per employee for the average public SaaS company.
He compares the current efficiency trend to 2021 when a $200M ARR SaaS company could have over 2,000 employees.
At the same time, we saw companies barely hitting $50M ARR but had over 700 employees.
According to the state of the current SaaS market, companies should have 350 employees at $100M ARR; and up to 450 employees if they have good cash flow and investing capacity.
However, reaching this level of efficiency in smaller SaaS companies begins to complicate things. For example, having 175 employees at $50M ARR is super efficient but rarely the case, even today.
Minimizing this equation further, having 88 employees at $25M ARR will be super rare. That said, according to Jason, this level of efficiency at this point is necessary if there’s no incoming investment round.
8. SaaS mergers and acquisitions will increase in 2024.
Mergers and acquisitions in the last two years now total $49 billion, surging to $60 billion when you account for AI acquisitions.
M&A in 2023 saw limits to an extent because of anti-trust scrutiny. On top of that, stock market volatility made it hard to put a value on acquisitions.
Furthermore, pipeline shocks made it hard to predict sales, especially in the first two quarters. That made outward expansion hard, making teams focus more on internal stability.
While the anti-trust issue will continue in 2024, the other factors will dissipate, allowing strategic M&A to grow back in 2024.
Other than that, reduced borrowing rates will lead to decreasing costs of debt which in turn will increase private equity M&A.
9. 44% of companies currently use a SaaS Security Management (SSPM) platform and 36% plan on doing so this year.
There was a 27% increase in SSPM usage between 2022 and 2023. (Image Source)
SSPMs offer comprehensive protection against common and rare security risks alike. General data security is one thing, but the SaaS ecosystem can lead to multiple issues not covered by traditional security systems.
For example, SaaS misconfigurations are a breeding ground for breaches. On top of that, third-party app access, which is very common today, is also a major security risk.
Other issues like proactive threat detection, identification of malicious apps, and data loss management are just some of the risks that SSPMs help mitigate.
10. The generalist role in the SaaS industry is being replaced by AI and automation.
Since AI and automation are taking over a lot of support and customer success roles, it’s slowly leaving fewer opportunities for a generalist role in SaaS.
Almost 20% of support systems in SaaS companies are now automated, in part by AI. This will only increase in 2024, leaving fewer landing places for a SaaS generalist.
What’s interesting is that AI may replace C-level roles too. For example, NetDragon Websoft, a video game company, has made an AI bot their CEO; and, their stocks rose up in the Hong Kong market after doing so.
B2B SaaS Trends
The SaaS industry is now worth around $232 billion. That’s a lot of potential for B2B companies to tap into.
11. There is a heavy shift towards vertical SaaS to offer niche services as a counter to SaaS saturation. (Source)
While digitization has been happening for a while, there were still a lot of industries and organizations out of the loop.
But COVID-19, regulatory drivers, and market competition have forced digitization.
On top of that, we have more Millennial buyers than ever – Millennials in key decision-making roles will increase the demand for digitization further.
This shift, along with the increasing accessibility of data and the improvement of foundational cloud and mobile technologies has helped bring a good majority of industries and businesses online.
This has opened up market gaps in every industry allowing entrepreneurs to offer niche solutions. On top of that, companies like OpenAI and Twilio allow new SaaS entrants to deliver more robust and specialized software.
12. B2B SaaS companies in 2024 will observe similar growth rates to 2023.
Compared to Q4 2022, there was a 6% decline in growth rates in Q4 2023. (Image Source)
According to the US Federal Reserve’s Q1 2024 meeting, economic activity growth has slowed down compared to Q3 2023 and will remain so.
However, data from the Maxio Institute shows that 2024 will see the same growth rates as seen in 2023.
That said, there has been a decline in overall B2B SaaS growth rates for the last two years.
Deal value and count were highest in 2021. (Image Source)
There was a massive boom in the B2B SaaS industry during and immediately after the pandemic, leading to massive growth rates.
That led to an investing frenzy, with the highest deal counts and values in the last decade.
But that trend has been normalizing since 2021 and we’re now at the same level as we were pre-pandemic.
13. The restaurant, hospitality, and leisure tech industry is seeing the most B2B SaaS growth.
By Q4 2023, the restaurant, hospitality, and leisure tech B2B industry had a 34% average annual growth rate. (Image Source)
Compared to 2022, the industry saw a 29% improvement in YoY growth rates. The property industry came in second with a YoY improvement of 13%, followed by the public sector at 6%.
This uptick in traveling started as countries loosened COVID-19 restrictions and borders started reopening.
A 2023 Forbes survey found that 87% of Americans planned on traveling at least as much as they did in 2022 while 49% planned to travel more.
Due to the increased demand for travel, the restaurant, hospitality, and leisure B2B industry has been growing continually.
That said, you can expect growth rates for the industry to normalize in the coming years to levels seen before the pandemic.
SaaS Marketing Trends
14. More SaaS companies than ever are using CRM tools for improved productivity and efficiency.
The State of SaaS LatAm 2024 report found that 76% of SaaS companies are using CRM tools. (Image Source)
European and North American cloud industries are at a maturity point where most of them are using tools and processes to improve marketing and sales teams’ performances.
However, the cloud industry in Latin America, Africa, and Asia is still maturing. As that happens, SaaS companies are realizing and using new ways to improve productivity within their sales and marketing teams.
The usage of CRM tools is one of the most common ways to improve marketing and sales process efficiency.
Within the CRM industry, the report also found that HubSpot was the most common solution used by SaaS companies, capturing 29.4% of the market.
15. 64% of SaaS companies are growing their sales teams in 2024.
22% of SaaS companies plan to grow their sales teams by more than 50% while 42% of companies plan on growing their sales team by 10-40%.
26% of companies plan on not making any changes to their sales teams while 10% plan on shrinking them.
16. Customer acquisition costs are rising while marketing budgets are shrinking.
B2B SaaS marketers are consistently facing reduced marketing budgets but at the same time, marketing costs are growing.
The biggest ick that B2B marketers have is that CEOs expect the same marketing results even after slashing budgets.
Meanwhile, marketing teams are also getting downsized to essential roles only, with companies opting to go for freelancing services instead of full-time roles.
Other issues like stricter data policies will make it harder to track user behaviors, further complicating the customer acquisition process.
17. SaaS companies will focus on privacy-centric marketing strategies.
2023 gave us stricter privacy regulations and a decline in third-party cookies. Google has already started the process of eliminating third-party cookies with plans to ramp up restrictions to 100% of users from Q3 2024.
Due to this shift, SaaS marketers are and will shift toward privacy-centric marketing strategies that focus on cookieless technologies and first-party data.
For example, Apple’s iOS 14 update gave users the App Tracking Transparency (ATT) option where they can control which apps track their data, and in what capacity.
Expert Insights on SaaS Trends
Beyond what I’ve covered above, I’d like to share some insights from experts deep in the SaaS world. For starters, right now, the fastest-growing region in the cloud industry is Latin America with a CAGR of 28%.
“The LatAM tech market was non-existent in the past, between 2018 and 2021 the best talent decided to start a business and today the reality is that there are amazing entrepreneurs and promising capital efficient startups.
We believe in the huge potential of local companies becoming global success cases.”
Furthermore, with SaaS companies focusing on automation and the implementation of AI tech, many experts believe it to be a necessity in 2024.
Marie Ahlberg, CFO at Quinyx, said that in the current economic climate, efficiency and automation are key, especially in customer experience and finance roles.
Other than that, SaaS success today also relies a lot on proper proactive networking.
“Building strategic industry partnerships is key to SaaS success in 2024. It’ll give companies the ability to embrace agile development methodologies while being able to respond to marketing changes promptly.”
Meanwhile, synergy between departments will also improve. Ben Pippenger, co-founder and Chief Strategy Officer at Zylo, believes that the IT-finance partnership at SaaS companies will be stronger than ever.
2023 saw reduced operating expenses and the rise of responsible business growth. But in 2024, IT heads will now become critical partners in cost savings efforts, especially by addressing SaaS sprawl.
Conclusion
AI is now a critical part of many SaaS offerings, there’s no doubt about that. But true industry-changing trends that we’re seeing are a shift in pricing strategies, emerging markets, and a heavy focus on reaching certain efficiencies.
This also means there’s a shift in how SaaS marketers and sales teams work. But as SaaS growth rates normalize, CEOs are reducing marketing budgets.
Therefore, SaaS marketers are finding more efficient strategies, based on privacy-centric marketing.
Mughees is an agile and detail-oriented content marketer and strategist with 3+ years of experience in strategy and management, and 9+ years of experience writing content that converts.
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