The SaaS Trends Report
What’s inside?
Introduction
It’s no secret that executives today are tightening their wallets, but they’re still spending on one thing: SaaS.
We know firsthand that companies always buy the tools they need to succeed. In times of economic uncertainty – alongside new products and emerging categories – it’s really important to know where and how to invest in SaaS.
At Vendr, our north star is data.
Whether you’re a software buyer, product, investor, or enthusiast, understanding quantitative insights is the best way to improve decision-making and better understand the market.
We’ve processed billions in software spend across tens of thousands of deals and thousands of products.
Today, we will explore all the insights we gathered from Q1 2023 to assist you in making more informed, data-driven decisions when making your next SaaS purchases.
Looking to talk more about SaaS trends? I’m sharing Vendr’s industry-leading data every week on LinkedIn. Join the conversation!
SaaS market snapshot
Top-purchased software categories
In Q1 2023, Vendr processed 2,900+ transactions, including new purchases, renewals and upgrades.
In Q1, Vendr customers bought more than 900 different products, with CRM – specifically Salesforce – emerging as the clear leader with the most deals and highest average contract value.
The top ten most purchased products fell into three mission-critical categories during this period.
The SaaS Leaderboard
The top-purchased products through Vendr in Q1 2023, organized by category.
CRM
Salesforce leads the CRM software market, owning 69% of CRM transactions through Vendr. Salesforce's cloud-based CRM is scalable and flexible, making it popular across all company sizes.
Salesforce's range of CRM products, including Sales, Service, Marketing, and Commerce Cloud, are market leaders in their respective Vendr categories. With over 5,000 apps on its AppExchange marketplace, Salesforce will likely stay on top of the most purchased products list throughout 2023.
The stickiest products are able to control their prices. You don't wake up one day and cancel your CRM, design platform, or engineering stack. Critical infrastructure warrants higher prices.
– Ryan
Top products by ACV
Higher transaction volume correlates with a higher negotiated price: companies who excel at closing deals tend to command a higher average contract value.
This is most true of Salesforce, which not only occupies the top spot by deal count but far outperforms the rest of the pack in terms of average deal size. Where only a handful of the top-purchased SaaS tools make it past the $250,000 mark, Salesforce’s average negotiated price is a true outlier compared to other products at $854,679.
Other popular and high-value products include Zoom, Slack, NetSuite, and GitHub, which all had a similar number of deals and an average negotiated price ranging from $50,000 to $250,000.
Meanwhile, suppliers like Figma, Carta, and 1Password had lower average prices ranging from $20,000 to $49,999 and are still climbing the ranks in total transactions.
Businesses put their money where their mouths were in Q1. Sales, cybersecurity, design and communications were top priorities for companies. This reflects that they value mission-critical SaaS.
–Ryan
Product performance
Smaller SaaS players hold their ground against top products
Only 13% of Vendr purchases are attributed to 10 top products, while 900+ diverse products contribute to the majority of sales.
In the first three months of 2023, Vendr analyzed almost 3,000 transactions and found that popular products like Salesforce, Slack, and DocuSign only accounted for a small slice of all purchases. Although these products are popular, 87% of Vendr transactions were for other products in our catalog.
Most transactions at Vendr involve one of nearly 1,000 different products, showing that customers prefer to choose from a wide variety of options instead of just a few big names. With Vendr's data-driven SaaS marketplace and recommendations, customers can find the best-fit product for their needs beyond just the market leaders.
The long tail of SaaS is really long, with almost 1,000 different products purchased on Vendr in Q1.
– Ryan
Top newly purchased products
In 2022, 8 out of 10 executives listed new-business building as one of their top five priorities for 2023.
These SaaS companies offer products purchased most often for the first time — as opposed to renewals.
In 2022, 8 out of 10 executives listed building new business as one of their top five priorities for 2023 — according to a late-2022 McKinsey report.
Unsurprisingly, products that help companies increase their bottom line and make sales more competitive are here to stay.
What’s driving these increases?
Drata
Salesloft
1Password
Heap
Klue
LeanData
AI-Powered Tools
The start of 2023 has seen a significant shift in buying behaviors, with a notable increase in purchases of AI-powered software in Q1 compared to the previous quarter. AI-powered software is increasingly being recognized as an essential tool for businesses to improve their efficiency and productivity.
As the leading AI models, OpenAI and ChatGPT have contributed significantly to this trend by offering powerful language models that can perform a range of tasks, from generating text to answering questions.
With the continued proliferation of AI-powered tools, businesses are recognizing the need to incorporate them into their operations to remain competitive. According to a recent study by Gartner, global spending on AI is expected to reach $557 billion by 2024, up from an estimated $363 billion in 2019.
Here at Vendr, 5% of Q1 purchases were AI-powered tools that have native GPT or other AI functionality, primarily in the revenue and data security categories. More interestingly, 36% of tools purchased in this period offer some form of AI feature—rising 4% from last quarter.
These trends raise an important question:
Will new entrants leverage AI in a disruptive innovation model or will AI be embedded in all products in more of a sustaining evolution?
As Harvard Business School Professor and business consultant Clayton Christiansen would describe, is AI going to be a disruptive or sustaining innovation? It’s too early to tell. Still, these buying trends, the increasing adoption of AI-powered features among existing tools, and the popularity of AI more broadly tell us to expect a surge of purchases for companies in this category throughout 2023.
Innovations like GPT-4 are likely to be integrated across the board. We’re already seeing signs of industry leaders taking the plunge:
Sales and revenue (Microsoft added their AI-powered Copilot to 365 and now offers AI-powered search through Bing)
Notion has built AI into their productivity and note-taking app
Google announced this quarter that they’ll be bringing AI into the Workspace suite
The value of AI-powered SaaS tools is undeniable. As more companies realize this, we’re seeing an uptick in the number of AI features offered. The trend is positive for businesses looking to streamline their operations and drive growth.
– Ryan
Navigating the SaaS pricing landscape
How inflation and volatility are impacting SaaS prices
Earlier this year, we predicted that 2023 would be the year of SaaS price hikes.
We predicted that share of wallet, coupled with a hardening economic climate and increasing inflation, would likely lead the big players to up their prices, eating up Gartner’s forecasted 11.3% rise in software budgets for 2023.
List toppers like Google, AWS, and LinkedIn know their products are sticky and have few viable alternatives. If they hike their prices, where are you going to go?
Additionally, inflationary pressures, particularly in tech hubs like Silicon Valley, contribute to the rising prices for software products as companies face higher expenses for salaries, benefits, and other operational costs.
Now, three months into 2023, we have the data to show it.
Average contract values
The data set reveals a consistent YoY increase in SaaS purchases' average contract value (ACV) during Q1.
In 2023, the ACV rose to $137,072, a significant increase compared to previous years, representing a 23% increase from the ACV for all transactions in 2022. The ACV for Q1 2022 was $101,412, indicating a 3% YoY increase from 2021. The ACV for Q1 2021 was $98,516, showing a 22% YoY increase from 2020.
Federal interest rates rose four percentage points between March 2022 and March 2023. This is closely tied to the consistent increase in the average contract value (ACV) of SaaS purchases over the past 12 months.
These economic factors have likely contributed to the upward trend in SaaS prices – and the projected 23% hike in 2023 – indicating the potential impact of economic pressures on the industry. Therefore, businesses must be careful in developing pricing strategies to offset these pressures effectively.
We expect 2023 to become the year of price hikes. Someone needs to foot the bill for higher costs incurred by inflation, coupled with a tough funding climate. The customer is likely going to bear the brunt.
– Ryan
Why are SaaS prices rising?
Silicon Valley Bank shockwaves
Silicon Valley Bank's collapse caused SaaS companies to face unexpected financial challenges, disrupting much of the industry's access to funding. This collapse has a ripple effect, with many companies struggling to secure the funding they need to maintain growth and innovation.
The shift highlighted the necessity for SaaS to increase transparency and exercise greater due diligence in the banking sector. More so, the collapse caused concerns about the quality of loan portfolios and the financial stability of other banks that might be affected by the technology industry. Companies could face more challenges and scrutiny in obtaining funding, slowing down the growth of SaaS innovation. On the other hand, it will also increase the importance of focusing on long-term financial stability.
Economic factors
The impact of the economy on the SaaS industry must be addressed, with many large tech companies struggling to maintain profitability in the face of significant layoffs and rising expenses.
The rising interest rates have significantly impacted the cost of borrowing, further driving up expenses for SaaS providers. To offset these cost increases, some companies have been forced to raise the prices of their products, which may have a lasting impact on the industry.
The SaaS industry must find ways to balance making a profit and keeping their products affordable, which will require innovation. Companies must invest in research and development, prioritize their products, and stay ahead of the competition.
Rising demand and digital transformation
Aside from the need to regain lost ground, this price increase may also result from an ongoing shift towards digital transformation, driving higher demand for SaaS products. This increased demand and a potential supply-demand imbalance allow SaaS providers to charge higher prices.
Sophistication and innovation
Simultaneously, companies must invest more heavily in research and development to maintain their competitive edge in the maturing market.
SaaS providers must continually innovate and develop more advanced features, including AI-powered suites, to stay ahead in a competitive landscape.
EY data shows an increase YOY in 2022 on R&D spend for B2B SaaS, and we see this as likely to continue through 2023, primarily as market demand for AI increases.
Increased complexity and sophistication lead to higher development costs, passed on to the consumers through higher software prices.
Compliance and security standards
As the software industry faces increased security and compliance requirements, providers must devote more resources to meeting these standards, driving up costs. This increased need is evidenced by the fact that half of the top ten new purchases are data security and compliance platforms (SaaS companies buy SaaS too!).
Six key factors influencing SaaS purchasing
Streamlining SaaS usage
Companies are cutting down on SaaS sprawl by opting for fewer products and shorter contract terms.
Focused spending
Recent trends indicate increased spending on specific, targeted SaaS products by businesses.
Cost-reduction strategies
Companies are implementing cost-cutting measures in response to price hikes for critical SaaS services. Organizations prefer suites over “best of breed” tools to maximize dollar value. They’re also looking closely at license utilization to identify opportunities for cost reduction.
Enhanced integration
Improved integration capabilities offered by SaaS products allow companies to connect existing systems more seamlessly, reducing the need for additional services.
Similarly, a trend toward suites strongly reduces the need for third-party integrations.
Reducing redundancy
Vendr customers use our overlapping spend report to identify redundant functionality across multiple SaaS products, eliminating inefficiencies and saving costs. Streamlining overlapped spending means identifying tools with similar features or competing subscriptions in the same category to simplify SaaS usage and cut spend.
Simplified procurement
Businesses work with fewer vendors to streamline procurement processes and reduce administrative burdens.
What to expect next
Q2 Predictions
Digital evolution continues
As we move into 2023 and beyond, the demand for cloud-based software solutions should grow significantly. Businesses will adopt AI-powered tools to automate processes and extract insights from large amounts of data, thus staying competitive and driving growth. This shift towards AI-powered solutions was accelerated by the introduction of ChatGPT, which has become a significant catalyst for the AI trend in both the SaaS market and consumer spaces.
As companies prioritize innovation and streamline operations, AI-powered tools will enable them to gain a competitive edge and stay ahead of the curve. AI will automate processes and help businesses extract valuable insights from vast data.
Therefore, businesses must adopt AI solutions to drive growth, remain competitive, and make data-driven decisions.
SaaS pricing uncertainty
We predict that big players may hike prices to offset declining shares of wallets and a challenging 2022, driving overall SaaS spending up. And, to complicate matters, federal interest rates have risen by four percentage points, impacting every aspect of procurement.
These economic pressures have contributed to the upward trend in SaaS prices, including a 23% hike in 2023. Businesses must carefully develop pricing strategies to offset these pressures while remaining competitive. It's a balancing act, but those who get it right will be well-positioned for success in the future.
Strong focus on customer retention and data security
As the SaaS market matures, vendors will focus on customer retention and expanding into new verticals to drive growth. We’ll likely see customer data-focused tools like Gong and 6sense top the new purchases list.
Similarly, companies will continue prioritizing data security and privacy to build customer trust and ensure compliance.
Conservative purchasing behavior
Companies are becoming more conservative in their purchasing decisions and favoring comprehensive suites over specialized tools. This shift affects product development, with larger companies opting to build, buy, and integrate solutions into existing suites.
Industry giants like Salesforce, our top SaaS leader, and Microsoft are already moving in this direction through their acquisitions and product expansion. This trend means that specialized point solutions may struggle to find footing, but there's ample opportunity for solutions that can integrate with existing suites.
Final Thought
SaaS businesses must prioritize data-driven decision-making as they move into 2023 and beyond.
After four years of working with thousands of SaaS buyers and sellers across 20,000+ deals, it’s obvious that the best SaaS businesses make decisions based on changing macro-trends. As economic challenges persist, companies must balance the realities of price hikes with the needs of their customers.
However, when we know that prices are going to go up, SaaS providers need to step up their game and prioritize building customer trust and loyalty.
Products that have built their worth on being both mission-critical and “sticky” are those that see success in deal counts and average contract value. On top of this, the steady rise of AI-powered tools and cutting-edge technologies make it essential for businesses to continue to invest in being best-in-class.
Vendr is here to help SaaS buyers leverage our expert insights on macro trends. We guide you in making data-driven decisions, adapting to new challenges, and building a tech stack that keeps you afloat in 2023 and beyond. We know what it takes to stay ahead in this ever-changing market, and we'll continue to help buyers and sellers with the transparency and fairness they deserve.