How Saas industry macro-trends are making B2B BNPL services necessary

Miguel Fernandez
Miguel Fernandez
Co-founder & CEO
Posted on
June 6, 2023
min read
How Saas industry macro-trends are making B2B BNPL services necessary

After a legendary run of upwards growth and prosperity during the 2010s that climaxed in the 2021 boom, 2023 has brought on the first substantial recession the SaaS industry has seen in a long time. 

Labeled by some as “the Great Restructuring”, the B2B SaaS industry of 2023 has seen a significant slowdown in growth, revenue, and overall performance, causing founders to re-think their approach to…well, everything. B2B SaaS businesses that were started in 2020 to early 2022 and are used to the easy money and exponential growth of the COVID-19 era are in for a particularly rude awakening as sales cycles lengthen, funding dries up, and customers simply aren’t buying the way they used to.

This is also happening in addition to larger factors that have little to do with the current economic climate. SaaS has always been extremely competitive, and it’s only getting more competitive as time goes on—regardless of the downturn. Buyer needs are changing as technology and culture change, and companies that want to survive the next decade need to stay flexible to the ongoing needs of the market. 

So what is a business leader to do if they want their B2B SaaS company to survive and grow during the next few years? B2B BNPL services are one solution to many modern problems B2B SaaS companies experience. Keep reading to learn more about BNPL and how SaaS industry trends are making BNPL services necessary.  

Effects of the economic downturn on the SaaS industry 

The entire global economy has been hit by a downturn very few were prepared for, but the SaaS industry has been hit particularly hard. 

With 678 tech companies laying off nearly 200,000 people in 2023 alone (as of the time this was written), and YoY growth declining by 15-16% since 2022, many changes have occurred within the past year that have caused SaaS founders and leaders to re-assess their approach to business strategy and revenue generation. 

Here are some of the biggest effects you may have noticed. 

VC funding has declined

Between tightened budgets causing startups to be less profitable and raising interest rates  changing how VCs choose to spend their money, it’s simply not as easy to get VC funding anymore. This is something many founders have noticed when comparing their 2021 funding rounds to their late 2022 and 2023 rounds—if they were able to get more rounds at all.  

According to Crunchbase, global VC funding has decreased by an average of 53% YoY since last year across all funding rounds, industries, and companies. Similarly, Jason Lemkin of SaaStr reports that compared to the peak, it’s now 3x-5x harder to raise a series A and 4x-10x harder to raise a series B, C, or D. 

This sharp decline in funding has forced SaaS companies to seek out alternative funding options, like revenue-based financing, or to shift their focus away from outside funding and toward revenue generation and achieving profitability. 

Sales cycles have gotten longer

Even though generating revenue seems to be more important than ever, it’s also harder than ever.

According to a survey conducted by RevOps, 49% of SaaS companies have observed an increase in their sales cycle length in 2023. Out of those companies, 52% reported sales cycle increases of 10% or more, with 6.3% experiencing a significant increase of 30% or more.

With less money to spend, buyers are taking more time to evaluate and make purchasing decisions, and many buyers that may have bought your product without batting an eye a year ago may now question whether it’s worth the cost. 

This poses challenges for SaaS companies as they need to allocate more resources and time to closing deals, resulting in increased customer acquisition costs and delayed revenue generation.

Companies have reprioritized spending

In an attempt to avoid the dreaded budgetary “death by a thousand cuts”, many businesses are trying to reduce unnecessary spending by prioritizing “must-haves” and cutting down on “nice-to-haves”—whether that be people, software, or office perks. 

For many SaaS solution providers with products that are somewhere in the middle of this necessity spectrum, this means there’s increased pressure in SaaS buying to demonstrate the effectiveness of your product as an indispensable tool for your target market. 

Runway has reduced

Between funding and revenue getting harder to acquire, Our Pulse of SaaS III data shows that runway in the B2B SaaS market has reduced by an average of 1.5 months since the downturn. 

With a reduced runway, SaaS companies face increased pressure to generate revenue quickly and efficiently. Many SaaS solution providers are putting growth on the back burner and are instead focusing on optimizing operations, driving customer acquisition, and increasing customer LTV (lifetime value) to preserve their runway.

Improving financial management practices by implementing rigorous expense tracking, budgeting, and forecasting, will also make a big difference. 

CAC has risen while ROI and LTV have declined

Unsurprisingly, the economic downturn has had a significant impact on customer acquisition costs (CAC) for SaaS companies. Our data indicates that a higher CAC is now required to generate the same LTV as before the downturn. On average, the LTV/CAC ratio has decreased by 2x compared to 2022.

As sales cycles lengthen and competition intensifies, acquiring new customers becomes more challenging and costly. Increased sales and marketing efforts are needed to convert the same amount of prospects into paying customers, and even when customers do convert, they typically spend less and don’t renew contracts as frequently. 

This creates a conundrum where companies need to invest more in customer acquisition, but the returns are not as lucrative as they used to be.

Billing issues and payment delays have increased

Within the past year, approximately 40% of B2B SaaS market companies have experienced an increase in collection times, while 50% have encountered delays in customer payments. This highlights the difficulty buyers face in paying for expensive annual contracts upfront with newly restricted budgets.

With upfront annual payments becoming more burdensome, many buyers are looking for flexible payment options that allow them to manage their cash flow more effectively. If these needs aren’t met, many buyers won’t convert, as they can no longer afford the steep upfront cost of an annual contract.  

Longstanding SaaS industry trends

The economic downturn isn’t the only thing that’s changed the SaaS industry. The landscape of the B2B SaaS market is constantly evolving, and the following trends have been slowly occurring regardless of the recent downturn.  

The SaaS industry is still—surprisingly—growing

Despite the uncertain economic times, the SaaS industry is still experiencing significant growth, as it always has. Gartner has predicted that software spending will increase by 11.3% in 2023, the highest category in a survey of multiple IT categories. In total, IT spending is expected to reach $4.6 trillion by 2023, a growth of 5.3% from 2022.

Enterprise-level solutions in the B2B SaaS market are showing particularly impressive resilience. In the same survey, 69% of CFOs said they were planning to increase their spending on digital technologies in 2023. By contrast, consumer spending on tech was down, with many consumers putting off purchases on devices. 

This means that B2B SaaS solution providers will be a bit insulated from the full brunt of the downturn, and still have an opportunity to recognize the growth opportunities within the industry and position themselves strategically to capitalize on them. 

Competition between SaaS solution providers has increased

Alongside continual growth comes continual competition. According to the State of SaaS Buying Report by Spendflo, SaaS has become one of the top 5 expenses in nearly every organization, with 20% of large 1,000+ employee companies using a tech stack of 250 tools or more. And BMC reports that 99% of companies use one or more SaaS solutions. 

As SaaS adoption continues to rise across organizations of all sizes, the competition to offer the most innovative and effective solutions becomes fiercer—as does the competition to offer the best price and user experience.

Flexible and short-term payments are trending

By nature, SaaS provides payment flexibility—instead of paying one time to own a product forever, buyers pay in a subscription. Given the growing popularity of SaaS, this model has worked extremely well, with 80% of companies surveyed by DevSquad reporting that they’d like to transition entirely to subscription-based tech stacks by 2025.

The rise of subscription-based services aligns with the changing preferences and needs of businesses. Subscriptions provide greater flexibility, allowing organizations to scale their software usage based on evolving requirements. The B2C market has echoed this need for flexibility with the rising popularity of BNPL solutions like Affirm and Afterpay that transform regular consumer purchases into a flexible, quasi-subscription-like model.

As this trend continues to grow, companies that provide payment flexibility by offering the chance to pay on a monthly or quarterly (rather than annual) basis will have the upper hand. In fact, our internal data indicates that companies with flexible payments have 4.5x better churn rates than companies that don’t. 

So how can B2B BNPL services help?

So what does any of this have to do with B2B BNPL services?

Well, B2B BNPL can help SaaS solution providers diminish the negative impact of every single one of the above trends—without having to make massive changes in their business model, product, sales process, or finances. 

B2B buy now, pay later (BNPL) services work by allowing customers to pay for a product in flexible installments, while the seller gets the full value of the product upfront. For SaaS companies, this means you can sell an annual contract and get the full revenue from it immediately, while your customer pays in monthly or quarterly installments. 

Here are some key ways in which B2B BNPL services can offer a viable solution to address the challenges faced by SaaS businesses as a result of the current SaaS industry trends. 

Easily offer flexible payments without sacrificing revenue

With B2B BNPL, SaaS solution providers can get the revenue of full-price annual contracts, while customers can get the cash preservation benefits of paying in short-term installments. And unlike traditional financing services like loans or credit, B2B BNPL is incredibly easy to use and integrate into the sales process—making a frictionless experience for both buyer and seller. 

This lets your business cash in on the flexible payment trend and gives you a competitive advantage over competitors who don’t offer such flexible options, without requiring a restructuring of your sales process.

Accelerate sales cycles

B2B BNPL services can significantly accelerate sales cycles by reducing the upfront cost for customers. By removing financial barriers and making the payment process more manageable, buyers can make decisions more quickly, and vendors can close deals more efficiently and drive faster revenue growth—removing problems associated with slow sales and hesitant buyers.

Decrease CAC without sacrificing ACV or LTV

The traditional way to solve a high CAC is by offering financial incentives like discounts or short-term contracts, which have the negative side effect of lowering your annual contract value (ACV) and LTV. 

Since B2B BNPL services allow you to lower the upfront financial commitment for customers without lowering the total price, you can decrease CAC and maintain or even increase ACV and LTV at the same time—solving your downturn-exacerbated customer ROI problems once and for all. 

Increase conversions, renewals, and expand your pool of potential customers

Because B2B BNPL services remove the upfront financial barrier of an annual contract, they enable SaaS businesses to increase conversions by attracting customers who might have hesitated due to financial constraints. With the option to spread payments over time, customers who would not have been able to afford the product upfront can now say yes to the offering. 

This can help you expand your pool of potential customers, increase conversions from fence-sitters, and encourage renewals from customers who have seen financial changes since they first signed up for your services. B2B BNPL is also a great tool to attract customers with low or erratic cash flow, such as small and medium-sized businesses (SMBs), startups, and buyers with seasonal revenue.

Improve runway and cash flow

Not only do B2B BNPL services help you generate more revenue overall, but they also help you access more capital from each deal immediately. Instead of waiting for monthly payments or deferred payments to trickle in, B2B BNPL allows you to get the full cash value from each deal immediately after it closes. 

This can help SaaS solution providers secure a steady cash flow that reduces reliance on external funding sources like venture capital. 

Avoid the hassle of billing and collections

Finance teams that spend all their time dedicated to busy work can’t focus on strategic growth. With B2B BNPL services in place, SaaS companies can offload the responsibility of managing billing and collections to the BNPL provider, relieving them from the complexities and administrative burden associated with these tasks. This frees up your finance team to focus on core operations without the need to act as a financial intermediary or play the role of a bank.

Capchase Pay: A B2B BNPL service made for SaaS

If you’re looking for an easy and seamless way to start using a B2B BNPL service, Capchase can help. Capchase Pay is a comprehensive B2B BNPL solution built with the SaaS industry in mind.

With Capchase Pay, you can easily offer flexible payments to your customers, accelerate sales cycles, improve cash flow, streamline billing and collections, and conquer many other problems you may be experiencing from the SaaS industry trends listed above. 

Click here to learn more about Capchase Pay, or schedule a chat with our team sometime this week to get started integrating Capchase Pay into your sales process.