What Is the Growth Rate of SaaS?

What Is the Growth Rate of SaaS?

Few things in this life are certain, but certain things are— death, taxes, and the consistent growth of the SaaS industry. When it comes to growth, there is a seemingly ever-increasing separation between failed SaaS companies and SaaS success stories, driving many savvy entrepreneurs to consider attending a SaaS conference. This is a great idea—especially if they’re looking to position themselves at the forefront of SaaS industry growth and drive long-term success. 

In this article, we’re exploring SaaS growth rates—what they mean, what some benchmarks are, and some tips for driving consistent and sustainable growth through innovation.

How Fast Is the SaaS Market Growing?

In a word, the SaaS market is growing steadily. For example, data shows that in 2022 the global SaaS market was worth over $261 billion—with an expected compound annual growth rate (CAGR) between 2023 and 2030 of 13.7%.

A number of modern trends seem to indicate that this growth will continue into the foreseeable future—especially as more companies, across more industries, adopt one or more SaaS solutions for their business. Consider these points:

  • 99%(!) of companies are expected to be working with at least one SaaS solution by the end of 2023. (Zippia)
  • The average number of SaaS applications companies use correlates to their employee headcount. For example, companies with 50-99 employees use an average of 24 distinct applications, while companies with 1000 or more use well over 100 applications. (BetterCloud)

What Is the Average Growth Rate for a SaaS Company?

In terms of CAGR, the SaaS market for business applications saw an average startup growth rate of 16.4% between 2017 and 2022. Additional research shows that by 2029, the global Software as a Service (SaaS) market size is projected to grow at a CAGR of 19.7%—elevating it from a $251.17 billion industry in 2022 to one worth $883.34 billion.

What Is the Success Rate of SaaS?

There’s a widely-referenced statistic that suggests around 90% of modern SaaS startups end up failing to hit their revenue targets and ultimately fold. While it’s difficult to find the exact origin of this estimate, it has been cited by outlets like Forbes as early as 2015. Regardless, many SaaS industry leaders still use it as motivation to stand out among the ever-growing sea of competitors.

What Is the “Rule of 40” in SaaS?

In SaaS, the “Rule of 40” is a widely-adopted formula for developing SaaS growth benchmarks related to a company’s revenue and performance over time. It says that when you add the company’s growth rate and free cash flow rate together, the sum should be 40% or higher. 

It’s worth noting that this is an aspirational measure, as McKinsey research has found that “barely one-third of software companies achieve the Rule of 40” and “fewer still manage to maintain it.”

By acknowledging and addressing the core reasons for these failures, SaaS companies can rethink their products and services, to ensure they truly align with what their prospective customers are looking for. 

Why Do So Many SaaS Companies Fail?

According to CB Insights, these are the top three reasons why SaaS companies fail:

  • 38% simply run out of money and are unable to raise enough new capital to keep the venture alive.
  • 35% fail to identify a clear and compelling need in the market, or they fail to adequately tailor their offerings to what their customers expect or need.
  • 20% are simply “out-competed” within their industry, failing to distinguish themselves from competitors and deliver unique value.

Other common reasons include problems with their business model (19%), pricing challenges (15%), and product issues (8%). 

Next, let’s look at what success in SaaS looks like—and what key factors the best SaaS products have in common.

What Factors Fuel SaaS Growth and Success?

There are several reasons that account for the ongoing, dynamic growth of the SaaS industry. For starters, SaaS represents a modern and agile model for software delivery, implementation, and maintenance. The best SaaS platforms are also…

  • Highly scalable, suitable for an organization’s current state as well as its short- and long-term growth goals.
  • Eminently customizable, so it can be tailored to users’ preferences and priorities.
  • Easy to integrate with existing applications, systems, and processes.
  • Simple to understand, learn, and implement into operational workflows.
  • Stable and secure, keeping data safe and systems reliably online.

What Is the Future of the SaaS Market?

Even as McKinsey & Company research notes that “only a small share of SaaS companies sustain growth rates above 30 to 40 percent,” there are plenty of reasons to feel optimistic about the industry’s wellbeing. After all, if there’s an advantage of the growing volume of SaaS solutions on the market—good, bad, and otherwise—it’s that organizations can zero in on the SaaS applications that best align with their needs.

What Are the Fastest Growing SaaS Industries?

The fastest growing SaaS industries are a varied bunch, and a few prominent examples include:

  • Retail | Streamline inventory and order fulfillment systems, and adopt modern, secure payment processing methods.
  • Healthcare | Schedule and track appointments, organize and manage patient records, process payments, and more.
  • Finance | Gain insights into client preferences in order to provide more personalized, comprehensive service.
  • Manufacturing | Optimize production processes, inventory management, payment processing, and more.
  • Education | Better understand—and meet—the needs of diverse student populations, including robust, modern platforms for online learning environments.

What Trends Will Fuel Continued Growth in SaaS?

At this point, there’s no reason to believe the SaaS model is anything other than the present and future of how organizations across a number of industries understand and serve their customers. For many SaaS companies as well as those looking to adopt SaaS solutions, that can feel intimidating or make it difficult to know where to start. But it doesn’t have to be.

Gartner suggests 5 key SaaS growth strategies that form a blueprint you can use to plot your next moves. They include:

  • Rethink how the organization gains new customers, which might involve tweaking the target audience or segmenting it into multiple ideal customer profiles (ICPs).
  • Develop and scale sales and marketing campaigns that are backed by data and focused on short- and long-term growth.
  • Evaluate their pricing strategies to ensure that they align with customer preferences and are able to deliver value across the duration of their subscription.
  • Leverage search engine optimization (SEO) and content marketing practices to attract, engage, and convert customers and increase brand awareness.
  • Consider expansion into new market segments, product/service offerings, and subscription models.

Why Should I Attend a SaaS Conference?

Whether you’re looking to better understand the strengths and weaknesses of your SaaS company’s business model or product/service offerings or you want to “think big” and innovate for future growth and success, you should consider attending a SaaS conference. Reading articles online is one thing, but immersing yourself within a dynamic community of fellow entrepreneurs and innovators is a whole different ball game.

By attending a conference, you can:

  • Experience new perspectives and philosophies.
  • Engage with thought leaders and industry experts through keynote presentations, panels, and other activities.
  • Develop a network of like-minded entrepreneurs and fellow visionaries.
  • Workshop ideas or enter a pitch competition.
  • Preview the trends that are expected to impact or even transform your industry.

Which SaaS Conference Should I Attend?

There are a number of great SaaS conferences you could attend, so whether you’re interested in virtual, in-person, or hybrid experiences you can find the perfect opportunity. You can learn much more about many of these in our guide to Saas conferences.

Many of these conferences have been around for 10 years or more, and they consistently draw attendees who have heard of them and decide to finally see what the hype is all about. All too often, they wind up underwhelmed, and leave feeling like if they’ve been to one they might as well have been to them all. SaaS conferences can feel like echo chambers, where the same few supposedly-buzzworthy ideas are repeated ad nauseam. All too often, no real innovation or progress seems to happen.

At Rally, we believe true innovation comes from challenging preconceptions, asking brand new questions, and cultivating meaningful relationships with fellow professionals not just in their own industry, but across others as well.

Introducing the Rally Innovation Conference

This year, why not try something new? We’re excited to introduce a brand-new, cross-sector conference designed around the concepts of innovation and collaboration. It’s organized around six “innovation studios,” where SaaS industry knowledge and perspectives intersect with trends and opportunities in other industries, including Software, Ag & Food, Healthcare, HardTech, SportsTech, and Entrepreneurship.

Learn more about this year’s event on our website. There, you can also view the agenda  and register for this year’s event.