SaaS Subscription Economy Is Driven By Discounts And Relationships

While industries like travel and real estate have experienced challenges, SaaS companies are experiencing either acceleration or at least a limited impact on their subscription growth rates. With the shift to remote work, SaaS companies have offered solutions that let teams work together seamlessly. From video conferencing, sharing documents, collaboration, and communication tools, companies like Zoom, Microsoft, Salesforce, and Oracle are thriving.

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What sets these companies apart are subscription models, allowing people to pay month-to-month rather than a yearly lump sum. According to a report released by Zuora, one of the ways subscription businesses have boosted their revenue during the global health crisis is offering discounts. Subscribers that received discounts grew by 10% in the first two quarters, with the average discount being 18% higher than the same period last year.

According to Miguel Fernández Larrea, Co-Founder and CEO of Capchase, revenue comes in “two shapes.” Customers usually choose to either pay month-to-month or receive a discount for paying for service upfront. When customers choose the monthly payment plan, "there is a cash gap at the beginning, which SaaS companies need to fund in some way." Now, discounts are more important than ever before as the future becomes increasingly uncertain.

“Many subscription businesses had the flexibility to rapidly shift their pricing and packaging,” explains Dr. Carl Gold, Chief Data Scientist at Zuora. “During any economic crisis, discounts are critical to both retaining customers and strengthening relationships to maintain long-term loyalty. Manufacturing and SaaS businesses, in particular, benefited from this approach.”

In April, Zuora reported that 53.3% of the companies it polled did not experience a significant impact to their subscriber acquisition rates, 22.5% of companies saw their subscription growth rate accelerate, and only 12.8% of companies experienced a slow in growth.

“But most importantly, subscription-based companies are placing a continued focus on customer relationships,” said Tien Tzuo, CEO of Zuora and self-described authority on "The Subscription Economy." “If the Subscription Economy is about anything, it's about a fundamental return to relationships.” And strong customer relationships are what he believes will ultimately drive SaaS subscriptions.