A lot of you reading SaaStr are probably more B2B SaaS oriented and may not be paying attention to the consumer market, but it’s already massive and is continuing to grow quickly. In this week’s Workshop Wednesday, RevenueCat CEO Jacob Eiting and Growth Advocate David Barnard share their annual State of Subscription Apps report with us.
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Back to the consumer market. By 2030, consumer spend on digital goods and services is predicted to be $2.2 trillion. That’s a lot of dollars up for grabs. There’s a lot to learn from our mobile-first comrades because it’s even harder over there than it is over here. In many ways, they have to do better with UI/UX, onboarding, and conversions.
So, let’s look at the state of subscription apps and how B2B SaaS can learn from it.
Lesson #1: Maximize the Blurred Lines Between Consumer, Prosumer, and Enterprise
There are a lot of differences between consumer and B2B audiences, as you can see in this chart, but the lines are blurring more and more. B2B is finding more consumers and prosumers paying, and B2C is finding Enterprise and business use cases.
- Enterprise SaaS has a much higher average revenue per paying account, while consumer is around a $0.35 average realized LTV.
- Churn is much higher on consumer subscriptions, but you have higher expansion revenue. Consumer apps like Tinder and Duolingo are leaning into this.
- NRR will be much lower on the consumer side, but you make up for it with mass-market potential of 5B consumers with their credit cards attached to the app store. Because of that, you see a 5x increase in conversion from trial to paid on the app store.
- You have internationalization on the app store on day one, vs. B2B, which requires a lot of work.
- Acquisition costs are dramatically lower for consumer and word-of-mouth distribution can go viral.
That’s a lot of pros and cons of selling to consumers. If you’re in Enterprise SaaS, think about how you can leverage those benefits and move into prosumer or even consumer. If you’re in consumer, how can you go upmarket and get a small cohort of users paying more, churning less, and expanding revenue?
RevenueCat is selling to businesses selling to consumers, which has resulted in over $6B in subscription app revenue tracked across the Apple Store, Google Play Store, and Stripe. You have Microsoft making around $500M selling to consumers with apps like Excel, Copilot, and Word, illustrating how Enterprise and consumer companies can blur those lines and expand their revenue into consumer markets.
Lesson #2: Conversion to Paid Is Fairly Low While Free Trial Offerings Are Way Up
70% of mobile subscription apps now offer free trials, at least in part. That’s up from 60% in 2023. While free trial offerings have increased, conversion to paid remains fairly low at 1.7%. In B2B, the classic metric for this is 2% now and was 2% in 2006.
A lot of folks try to go down or upmarket by bolting on a PLG offering or bolting on a higher-value add because 5% churn can be brutal. But the product has to be good enough to support any conversions, and your denominators have to work.
As founders and executives, how big does your denominator have to be if 1.7% is going to work? You need 50M active free users to build a paid business, no matter the price. The 2% also doesn’t include advertising, which might be less relevant in B2B. Even though 2% will pay you, you can still capture value if you have an attentive audience.
In B2B, you also have fixed costs, but you can diversify monetization based on tokens or seats, or in the case of AWS, however you like. As you think about conversion to paid or freemiums, try not to leave any uncaptured value on the edges.
Lesson #3: Capture the Low-Hanging Fruit and Then Expand
North American users outspend the world on IOS and Android. The average realized LTV per download in North America in 14 days is 4x the global average. The U.S. overshadows everything else, even with Android. RevenueCat sees that a lot of companies focus only on IOS in the U.S.
Then, as they mature, they look at other opportunities and create the Android app. While this might have made sense at one point, according to RevenueCat’s data, 25% of their mobile usage came from Android mobile. You don’t want to leave low-hanging fruit like that uneaten.
A world where you can ship only an IOS app is over, especially in a business context.
Lesson #4: Consumer Churn Is High, But So Are Resubscription Rates
While consumer churn is high and might be off-putting to go after, resubscription rates are high, at 12% within 12 months of churning. To maximize this fact, you need to have the right onboarding processes in place to recapture those people. In B2B SaaS, you also have a lot of opportunities to win people back, and that starts with great onboarding and marketing automation in place to stay top of mind.
There’s more leverage in reactivating a churned subscriber because:
- You’ve already paid the CAC once
- They have awareness
- They have an account
- You have a way to access them via marketing and messaging
People’s lives change throughout the seasons, and maybe your product didn’t quite work for them then, but it might at a later stage. Often, people just aren’t using it enough, or need better onboarding.
While terrible churn in B2B SaaS is 5%, it’s much worse for mobile apps. 25% isn’t unusual. While 25% churn is huge, the best mobile business apps see 74% renewal rates. It really pays to lean into retention, especially if you sell to SMBs.
Lesson #5: If You Don’t Pay Attention to Activation Rates on Day One, You’re Flushing Customers Down The Tube
The top mistake founders make in startups is not knowing their activation rates or seeing sub-80% in the first 60 days. If that’s you, you’re flushing customers down the tube. On the customer side, the single most important moment for keeping a customer is the moment they found you. You’re a cold drink of water, so don’t blow it.
That means good onboarding, telling them how you’ll solve their problems and how much it’ll cost within a minute of interacting with them. Founders are busy, so if you don’t give them this information and experience quickly, they’ll find solutions elsewhere. You can’t spend enough time on onboarding. Show users what they get and push them to start a trial. It’s not being aggressive charging for something you built that solves peoples’ problems, so seize the moment.
You also don’t want to get someone half-integrated and then tell them to contact sales. You’ll lose people. Don’t put up gates; show your value as fast as you possibly can, and don’t settle for glacial times to deployment.
Key Takeaways
- Consumer SaaS is massive, and there are opportunities to serve both consumers and prosumers with B2B tools like RevenueCat.
- Consumer SaaS has a lot of drawbacks, but it also has the benefits of scale. It’s massive and growing so fast.
- Conversion to paid varies by geography and category, so look at opportunities you’ll go after and make the numbers work.
- North America is a great place to focus, but you’ll want to grow beyond that.
- Consumer churn is high, but so are re-subscriptions. Lean into facts on the ground and find ways to win people back.
- Spend time on onboarding and get people up and running as fast as possible.
You can download the full 60+-page RevenueCat report at revenuecat.com/report.
