In today’s evolving digital landscape, knowing how to sell SaaS has become a crucial skill in the tech industry.
With the popularity of Software as a Service (SaaS) increasing exponentially, businesses are evolving the way they operate by adapting flexible and cost-effective solutions to obstacles in their work pipeline.
In a report by Statista, this industry is estimated to be worth approximately 197 billion U.S. dollars in 2023, with an expectation to grow to reach 232 billion U.S. dollars in 2024.
So how do we capitalize on this opportunity? To sell SaaS, we need to dig a little deeper into the mechanisms and strategies that alleviate SaaS sales.
To do that, we must first understand the characteristics of SaaS sales, including what it means, the sales process, sales cycle, sales funnel, sales models, and important metrics to keep an eye on as a SaaS sales rep.
What are SaaS Sales?
SaaS sales are the process of selling subscription access to cloud-based software. With this software, the service provider hosts the application on a remote server, and customers can access it over the Internet.
This saves customers the cost of purchasing, learning, and maintaining the software on their hardware. Instead, the software is managed by the provider’s customer success team and is maintained by their product engineers.
The SaaS Sales Models
There are 3 main SaaS models that you should be familiar with when you’re in the SaaS business:
- The self-service model
- Transactional model
- The enterprise model
Below lies a more in-depth explanation of each model’s unique characteristics
The SaaS self-service model
The self-serve model does not require any sales activity. Rather, marketing is the main driver behind traffic to your sales pipeline. This model is suitable for products with a lower price point and a simpler onboarding process.
This model works best for products that have low complexity and where customers require little technical knowledge to navigate the software. However, to generate significant revenue, your sales volume will need to be very high.
For models like this, most of your efforts should be focused on generating awareness about your product, simplifying the user interface, publishing content for your prospects to see, and making the onboarding as smooth as possible.
While you may not need a full sales team, having a proper customer success team will help reduce customer churn and upsell customers to upgrade plans that will increase expansion revenue.
Some notable examples of the SaaS self-service models include VOD platforms such as Netflix, Amazon Prime Video, and Hulu.
The SaaS Transactional Model
This model requires more complexity and, thus, a higher price. You might need to hire more staff to help in selling software, thus increasing the price. This increased price will leave customers with increased expectations, and they will want a more significant business relationship by at least interacting with a sales rep.
The transactional model focuses on efficient, high-volume sales, short sales cycles, and quick onboarding. Customers will expect to sign contracts, have access to sales reps and even receive updates periodically.
This may come about as an upgrade to the self-service model, as customers’ needs become more complex, you might have to switch to this model to provide solutions to their needs.
Many different businesses have adapted the SaaS transactional model to offer their customers additional functionality.
One such example is HubSpot, which is an inbound marketing and sales platform. They use a tiered pricing model based on the number of contacts or customers in a company’s database and the level of functionality required.
The SaaS Enterprise Model
As the name suggests, this model is specific to B2B SaaS sales. The service tends to be very complex, and it is a very involved model that requires many staff to operate efficiently. It is a high-risk- high-reward model as it involves successfully turning leads to generate revenue. The product tends to be full of features that offer solutions to complex business processes.
The SaaS sales cycle tends to be much longer for this model, as there exists bureaucratic inertia.
This includes waiting for the company’s current contract with their provider to expire, migrating them over to your platform, drafting agreements, negotiating on both ends, etc.
But this also means that bureaucratic inertia leads to less churn.
This model is less common with younger companies, and only companies that have grown out of their self-service and transactional sales model tend to advance to this intensive tier of the sales models.
One prominent example of this type of model is Workday, which is a cloud-based HR and financial management software that serves large enterprises. Their SaaS Enterprise model includes human capital management, payroll, financial management, and analytics.
Due to its considerable complexity and premium pricing, Workday offers personalized, high-touch sales, and support services to assist customers in configuring the product according to their specific needs.
The SaaS Sales Cycle
The B2B SaaS sales process details the stages a company goes through to ensure a closed deal with a potential customer. The sales process can look a little different every time, depending on the product, but the average length of this cycle is said to be 84 days. We can generally narrow it down to the following 6 steps:
1. Lead Generation & Prospecting
Lead generation involves attracting potential customers interested in your software product through methods like content marketing, social media, webinars, and more. But to do that, you must identify your ideal customer first. For example, you can do this by targeting people based on job title or industry.
Outbound prospecting means putting yourself out there by actively reaching out to ideal customers through cold calls or emails. This method will require a little more manpower and the proper information to target the right people and say the right things to attract them.
Another method is Inbound marketing, such as online ads and blog posts, which can capture tech-savvy SaaS leads. To do this you will need excellent self-service capabilities that allow customers to find more information on your product by themselves.
After generating leads, you’ll want to qualify which leads will most likely purchase your product. If they’ve started a trial of your product, you can send a quick email or call to follow up and try to gauge their interest in your product.
Well-crafted qualifying questions can help you assess a lead’s budget, what their pain points may be, and consequently, how your product can help solve them.
An alternative method like automated lead scoring platforms like LeadBoxer can also make this process simpler for you.
So, you’ve narrowed down your leads, time to show them what your product is capable of by scheduling a demo. This gives you a chance to show the capabilities of your product one-to-one, and how it can solve their operational problems.
This can also help keep their attention on your product, and if your presentation is strong and personalized enough it can help keep competition at bay.
4. Handling Objections
After trialing your product or sitting through your presentation, prospects will usually have questions or concerns. The most common may be “Your product is too expensive” and “Your product is missing some features.”
If you face these questions, you’ll have to do a better job of showing how advantageous your product can be for them and dig deeper to find out why they think it isn’t worth the price or which features they think are missing.
If your prospect is worth it, or if many prospects note a discrepancy about a feature, you could use the opportunity to bring it up with your product engineers.
This is the step that will turn your prospects into customers. In this process, you finalize the agreement through negotiation and sign the contract with them. You can offer different subscription packages.
Some companies offer a monthly service or a ‘pay as you go’ model based on their usage of the product. You could offer an incentive such as a free trial month to make a strong case, but discounts are generally discouraged because they can lead to losses in the long run.
This might just be the most important step. Excellent customer service allows you to build long-term relations with the client. Additionally, you could consider offering training for new users at intervals and trying to find ways to upsell existing customers by offering upgrades that would fulfill their requirements.
The SaaS Sales Funnel
While the SaaS sales cycle details what sales reps do, the SaaS sales funnel looks at the whole process from the company’s perspective of the stages of securing clients.
As the name suggests, it’s wide at the top (initial stages) to show the potential leads in a cohort and narrow at the bottom (closing stage), representing the leads successfully converted into customers.
The sales funnel can help you understand what barriers may stop your prospects from converting and why. SaaS sales funnels can look a little different for each company, but for ease of explaining, let’s look into the one below:
- Awareness: At this point, your potential customers are aware of your company. Maybe they stumbled across a blog post organically or saw a social media post and are now aware of the product you can offer. To increase the number of potential customers and make more people aware of your product, you need to put your efforts into growing your brand awareness. Optimize your SEO strategy, promote your content, and include PR activities in your marketing plan.
- Interest This is the point at which they interact with any of your marketing materials; maybe they downloaded a PDF or signed up for a free trial. This is also the point at which you should nudge their interest by maybe educating them on your brand, and for that, you need to be very well-informed and armed with answers to any common FAQs.
- Evaluation: This is the point at which a prospect may consider a purchase. You must stroke the fire by answering any questions they may have of you. Be prepared to navigate any objections they may have, as well as demonstrate how your product can solve their problems.
- Engagement: The potential customer is close to making their decision, but they are still considering it. Therefore, it is important to continue keeping them engaged and reach out to see if they have any further questions. We do not want them to go radio silent on us, because that could mean they’ve chosen a competitor instead.
- Purchase: Finally, you’ve reached the point at which they have made their decision, and the deal may be done, or you could have lost the lead as well.
How To Optimize The SaaS Sales Funnel?
To start, you need to check each stage to see which stage doesn’t work properly and check at which point your prospects may start dropping out.
For example, let’s say you get a lot of leads, but they don’t reach out after the interest stage. That may mean you’re failing to grow their interest in your SaaS product and its capabilities. If they drop out after using a trial of your product, your onboarding may need improvement.
If your customers churn out after confirming their subscription, you may have gone wrong in showing your software’s true capability or paying attention to retaining your consumer. The following SaaS sales strategies could be implemented to rectify these:
- Qualify leads more thoroughly
- Present your software’s benefits clearly
- Pay more attention to your marketing, fortify your branding
- Improve your user interface
In addition to this, to consistently optimize your sales you will want to pay attention to some key SaaS sales metrics. This information will help you identify what’s working and what may need to be fixed for further growth.
SaaS Sales Metrics To Note
Here are some key SaaS sales metrics to keep an eye on.
Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR)
Monthly recurring revenue is a measure of how much revenue your company brings in every month based on the value of your current customer’s subscriptions. It is very simply calculated by adding up the monthly fee paid by every customer.
Annual recurring revenue is a measure of how much recurring revenue your company brings in every year and is calculated by multiplying the MRR by 12.
Customer Acquisition Cost (CAC)
The Customer Acquisition Cost (CAC) measures how much it costs on average to get a new customer. It includes the money spent on advertising and the work done by your sales and marketing teams.
To calculate your CAC, simply divide the total amount of money spent on sales and marketing by the number of customers you acquired in that same period.
Customer Lifetime Value (LTV)
Customer lifetime value (LTV) is the total amount of money you expect to earn from an average customer throughout your relationship with them.
To calculate LTV, just multiply the average purchase value by how often customers buy from you, then multiply that by the average lifespan of a customer.
CLTV: CAC ratio
This ratio is very important as it shows how profitable a customer will be over their lifespan. The higher the ratio the more you are making from the customer compared to how much it costs to acquire them. To calculate this ratio, simply divide your CLTV by your CAC.
Churn is the rate at which you lose customers. A high churn rate is especially bad as SaaS relies heavily on subscription revenue.
Moreover, a high churn rate means the cost of acquiring these customers is a sunk cost to the company.
To calculate the churn rate, divide the number of customers you lost in a particular period (month or quarter) by the number of customers you had at the start of that period.
Deal velocity is the rate at which a customer moves through your sales pipeline.
To wrap up, to thrive in this rapidly developing SaaS sales industry, it’s crucial to adapt and refine your SaaS sales approach.
The key to success in this field is keeping customers first, building lasting customer relationships, and delivering exceptional value.
By aligning your SaaS sales efforts with customer needs, focusing on consistently improving your SaaS sales metrics, and prioritizing customer success, you can set your business up for long-term success.