Small Companies, Big Growth: Why SaaS Companies Under $1M are Booming

This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Ray Rike, CEO of Benchmark IT, a company specializing in providing the SaaS industry with comprehensive and contextualized benchmarking data. Randy and Ray discuss the growth trends seen among private B2B SaaS companies, emphasizing how certain market dynamics are influencing growth rates. They further break down the distinction between small companies under $1 million in revenue and their larger counterparts, elucidating intriguing growth patterns and the impact of pricing models on these dynamics. Listen as Randy and Ray examine infrastructure industries, pointing out how investment behaviors and market conditions are shaping which sectors thrive.

Quotes

• “CAC ratio measures your sales and marketing expenses divided by your new ARR, which is new name customer and expansion customer ARR. But then be more granular, and look at your sales and marketing investment expenses allocated to the pursuit of new logos in the ARR. And divide that by the new logo, ARR. What I do with a lot of our customers is I actually build a matrix. " -Ray Rike [13:40]

• “One of the most illuminating things from the Maxio Institute report was you segmented by fixed rate pricing, that is, traditional subscription pricing and usage based pricing. Now, you did that for small companies, below a million and then above. So below a million, the fixed rate pricing companies were growing. They hit 44% in Q1 and 41% in Q2 of 24. Compare that to usage based pricing companies.” -Ray Rike [23:02]

Expert Takeaways

• Private B2B SaaS Growth: Private B2B SaaS companies are currently experiencing an average annual growth rate of 17%, a significant yet stable rate compared to prior exuberant expectations.
• Small Business Resurgence: Companies with less than $1 million in annual revenue are seeing robust growth rates of 26% in Q1 and 21% in Q2 of 2024, suggesting a revival in the small business sector.
• Impact of Pricing Models: Fixed rate pricing is benefiting smaller companies with rapid growth, whereas usage-based pricing drives substantial growth for larger enterprises.
• Industry Investment Trends: Infrastructure-related industries like cybersecurity, transportation, and healthcare are thriving, in contrast to the slower growth in entertainment and e-commerce sectors.
• AI Evolution: Investment in AI, particularly foundational models, has increased dramatically, with the trend continuing to shape the SaaS landscape.

Timestamps

(00:04) Benchmarking SaaS Growth with Data-Driven Insights

(05:24) Key Insights from Q2 Maxio Growth Report

(11:43) Balancing Growth and Efficiency in Sales and Marketing Investments

(19:33) Small Companies See Significant Growth Amid AI Investments

(23:02) Usage Based Pricing Versus Fixed Rate Pricing in SaaS Growth

(29:54) Impact of Inflation and Funding on B2B Tech Companies

(33:45) Investment Trends and Business Models in AI Companies

(38:52) Strategies for Scaling Companies and Optimizing Customer Profiles

(46:35) Ray Reich on SaaS Wisdom and Learning from Industry Experts

Links

Maxio