Since 2024, the SaaS industry has entered a period of economic turbulence, marked by tighter capital and cautious investors. Global venture funding fell dramatically in early 2024 – Q1 investments are 20% lower YoY and the second-lowest quarterly level since 2018 (source: CEE SaaS Index — March 2024 update | Vestbee). Mega-rounds have dried up: only 21 private SaaS deals over $100M closed in the past 12 months, versus 147 at the 2021 peak (source: SaaS Startup Funding Falls | Crunchbase).
High interest rates and inflation further cloud the outlook, leading to economic uncertainty going into 2025. According to SaaS Capital, equity financing is “expensive and/or limited”, prompting many companies to seek debt or conserve cash instead (source: 2025 Private SaaS Company Valuations | SaaS Capital).
In short, raising money has become significantly harder, forcing SaaS founders to extend runways, focus on efficiency and somehow “prioritizing profitability over growth”, as SaaS Capital observes in their 2024 Growth Benchmarks for Private SaaS Companies. In summary, the era of easy capital has ended, and SaaS leaders now face a new reality of capital constraints and investor scrutiny.
Intensified competition and slower customer acquisition
Experts note that “acquiring new customers has become more complex, time-consuming, and expensive” in the post-2022 environment (source : The SaaS Retention Report: The New Normal For SaaS | ChartMogul). The pandemic-era SaaS boom – fueled by cheap money and rapid digitization – gave way to a “growth bubble [that] popped” as demand cooled in late 2021. Since then, most SaaS companies have seen sharply slowing new business. In fact, 2022-2023 were dubbed a “software recession” for the industry, with net new ARR growth stalling (source: Kellblog Predictions for 2024 | Kellblog). Although 2024 shows signs of stabilization, it’s a “modest growth” environment rather than a return to hypergrowth”.
Across public SaaS companies, many report “longer sales cycles”, tighter budgets, and “prolonged decision-making processes” from clients (source : Sentiments on the SaaS Sales Environment from ~70 Publics | Blossom Street Ventures).
The competitive landscape compounds these challenges. With growth harder to come by, SaaS vendors are all vying for the same limited opportunities. Rising digital ad costs and crowded niches mean that Customer Acquisition Cost (CAC) has surged due to intense competition and higher ad bids (source : Customer Acquisition Vs Retention Costs: Statistics & Trends You Should Know | Invesp).
Retention and Upselling: the new Growth drivers
With new sales slowing, SaaS companies are increasingly turning inward to sustain momentum. Existing customers have become the lifeblood of growth in the downturn. Industry veteran Dave Kellogg captures this shift bluntly: “Retain is the new add.” (source: Kellblog Predictions for 2024 | Kellblog). In practical terms, this means maximizing the value of the users you already have – keeping them happy, renewing their subscriptions, and expanding their spend over time.
Data shows that expansion revenue (upsells and cross-sells) now accounts for a much larger share of growth than it did during the boom years. In 2024, SaaS companies around the $20M ARR range are seeing about “40% of their growth driven by expansions with existing customers, up from 30% in early 2021” (source: The SaaS Retention Report: The New Normal For SaaS | ChartMogul). As ChartMogul’s research of 2,500 SaaS businesses notes, Net Revenue Retention (NRR) has become the “most vital metric for sustaining growth in 2024 and beyond”. For instance, a recent European SaaS survey reports median NRR holding steady around 110% year-on-year – meaning the average company slightly grows revenue per customer annually, offsetting churn (source: Rapport SaaS européen 2024 | GP Bullhound). In fact, many companies managed to maintain or even improve net retention through the downturn by doubling down on customer success and product value.
Experts widely agree that investing in customer retention is not just a defensive play, but a smart growth strategy. “According to Harvard Business Review, acquiring a new customer can cost 5 to 25 times more than keeping an existing customer” (source: Customer Acquisition Vs Retention Costs: Statistics & Trends You Should Know | Invesp). In lean times, this ROI difference is critical. Retaining and upselling an existing client yields revenue at a fraction of the cost of landing a new logo – no hefty marketing spend or long sales cycle required. Moreover, satisfied customers often expand their usage organically and refer others, creating low-cost growth. Little wonder that SaaS leaders are shifting resources from pure acquisition to retention programs like customer success teams, loyalty incentives, and usage-based pricing that encourages expansion.
Upsells can prop up growth when new demand is shaky. By deepening engagement with current users – whether through additional seats, modules, or higher-tier plans – SaaS firms can achieve “growth from within.” Importantly, this strategy also fortifies the customer relationship against competitors. If your product becomes more entrenched in a client’s operations, it’s harder for a rival to displace it, and the client has more incentive to stay through tough times.
Customer retention isn’t just about preventing churn; it’s about maximizing each customer’s long-term value. High retention correlates with strong business health. Companies are now measuring both gross and net retention carefully. Even investors are rewarding this: firms with superior retention metrics and efficient expansion command higher valuations in today’s market.
In a sense, retention has become the new growth currency. SaaS companies that keep churn low and upsells high can sustain respectable net growth rates even if new bookings slow, which is crucial for staying competitive when every dollar/euro is hard-won.
Resilience through balanced growth
The current downturn has been a wake-up call for SaaS businesses to refocus on fundamentals. Uncertain economics and scarce capital have ended the era of growth-at-all-costs, replacing it with disciplined, customer-centric strategies. In 2024’s tough climate, success favors those who can “do more with less” – extracting more value from each customer rather than relying solely on big new wins. Companies that nurtured loyalty and product stickiness are weathering the storm with solid recurring revenues, while others scrambling for new sales find themselves in an uphill battle.
The playbook emerging from top experts and data is clear: shore up your base before chasing new frontiers. By prioritizing retention and upselling, SaaS firms can maintain growth trajectories and even strengthen their market position during a downturn. This doesn’t mean giving up on acquisition, but rather balancing it with expansion of existing relationships. And those who execute on this balanced approach will be best positioned to ride out the downturn and accelerate again when the tide turns.
So, to succeed today SaaS companies must focus on capital efficient growth. Best-in-class SaaS companies now focus on retention and expansion, and mature companies are shifting their growth strategies to prioritize existing customers. Contact us