The SaaS Sales Funnel: How to Maximize Your Conversions

SaaS sales funnel changes the way marketing and sales teams interact with each other and customers.

Those in business and marketing know the basics of the sales funnel, and with new advancements, more and more people are upgrading to a SaaS sales funnel model.

The acronym SaaS stands for a type of cloud computing service, called Software as a Service. SaaS services permit users to store data into a cloud and access it over the Internet, rather than download software on individual devices.

Key Takeaways

• The SaaS sales funnel, a specialized version of the traditional sales funnel, is tailored for Software as a Service companies, focusing on guiding potential customers from initial brand awareness through to and beyond their first purchase.
• This funnel not only tracks the customer’s journey and actions but also leverages metrics to convert leads into customers, utilizing technology like CRM to enhance understanding and management of customer relationships.
• Optimization of the SaaS sales funnel involves monitoring key performance indicators such as net profit, churn rates, and net promoter scores to refine and improve the sales process, aiming for increased customer acquisition, satisfaction, and retention.

What is a SaaS Sales Funnel?

SaaS sales funnel, also known as a conversion funnel, consists of multi-phased sales processes that begin with establishing awareness of your brand in your customers’ minds and extend beyond the initial payments.

More so, the SaaS conversion funnel records potential buyer actions.

SaaS Sales Funnel Basics

SaaS technology revolutionizes the original sales funnels model. The sales funnel, also known as the marketing funnel, frames the customer journey from the business’s point of view. Creating a successful sales process and customer transaction is the goal of a marketing funnel.

SaaS sales funnel consists of the marketing technique operated by SaaS companies to encourage qualified leads into a sale. Companies utilize SaaS sales funnel metrics (also called a SaaS conversion funnel) that track how many leads turn into new customers or users.

SaaS Industry and SaaS Product Explained

SaaS businesses are the product of the endogenous growth marketing theory, an economic theory that argues new technologies impact economic growth and improvement for the better.

Using SaaS sales, companies can provide software to customers by providing an online site for sale. SaaS products provide a means of helping a firm solve its problems. Like with every Business-to-business (B2B) sales process, there are definite objectives to help the buyer become successful.

The advantages of SaaS products are the selling point of introducing SaaS services into a company’s business model. For starters, the software does not exist on a company’s own hardware, preventing businesses from investing thousands of dollars in hard drive storage. Instead, the software exists in cloud storage.

Additionally, SaaS business provides companies with applications that streamline company processes and business goals. For example, SaaS provides companies with document management applications, email applications, company calendars, and auditing apps.

In regard to customers, SaaS software enforces automated product offerings sign-ups for website visitors. SaaS also permits companies to view the customer buying journey through customer relationship management (CRM) applications. Simply put, CRM helps companies manage relationships with existing customers as well as potential customers.

Through CRM applications, businesses stay connected with both the paying customer and potential customer across digital marketing, sales, and customer service. SaaS CRM applications record sales activity, product offerings, lead scoring, and the company’s contact information.

Essentially, the application acts as a database for existing customers and target customers.

Customer Acquisition Breakdown Through SaaS

SaaS sales funnel provides a wonderful outline for customer acquisition. According to the Corporate Finance Institute (CFI), there are three main features of customer acquisition.

The first factor is the customer acquisition cost (CAC). CAC consists of the total sales and marketing strategy costs to gain a potential customer divided by new customers earned. In brief, the CAC calculates the amount of money spent to get a potential customer and measures the return on investment.

Next is the customer lifetime value (CLV) or lifetime value of a customer (LTV). The CLV averages the gross profit of each customer over customer lifetime, or the course of their relationship with your company. CLV goes hand in hand with CAC and is a SaaS sales funnel metric used to gauge company growth.

The last factor is the conversion rate. The conversion rate holds the number of conversions in a marketing funnel stage divided by the stage’s total impressions.

Conversion refers to the process by which the marketing team reviews a potential customer that satisfies the criteria enough to inform the sales team. Sometimes, the conversion rate refers to the rate of website visitor to lead.

SaaS Sales Funnel Customer Acquisition Process

SaaS sales funnel uses CAC, customer lifetime value, and conversion rates. Generally, customer acquisition requires at least 3 main SaaS sales funnel stages— the lead generation stage, the lead conversion stage, and a product sales stage.

1. Lead Generation

The lead generation stage, or awareness stage, tops the SaaS sales funnel. At minimal, this stage focuses on product awareness. The lead generation stage has three main features— user intent, lead generation channels, and target audience.

User intent characterizes potential customers by their interest in consuming your service. Some individuals want to purchase right away, and some are just curious and fell on your landing pages with no immediate interest in your product. Understanding user intent allows marketing teams to create a lead magnet landing that increases conversion rates.

A common marketing automation strategy offers a free trial. A free trial permits you to gauge and monitor customer intent.

All lead magnets provoke different types of users and have different outcomes. For example, e-newsletters sent out by your marketing department will generally not be as effective as marketing methods that focus on a target audience. Your marketing team can experiment with what works best.

2. Lead Conversion

Lead conversion fills the next step of the sales funnel. After you and your marketing team create effective lead magnets, the next stage focuses entirely on conversion.

During the conversion stage, the focus will be the conversion rate. Engage potential consumers with the marketing and sales team until they convert to a marketing qualified lead. MQLs then move on to a sales rep, beginning the sales process.

3. Product Sales

The last stage of the sales funnel consists of successfully making sales. After successful conversion of qualified leads, your sales team focuses on customer retention. Arguably, retaining customers is the most important part of customer acquisition.

One way to induce customer retention is through customer satisfaction surveys after making sales. Recording customer feedback potentially helps improve services and products in the long run.

Another way to keep customers involves a demo stage of the sales process. For any new services you create, encourage sales reps to offer a free demo of the service. Your sales team can also create e-newsletters that inform loyal customers about a new product or company updates.

How to Optimize the SaaS Sales Funnel

According to Forbes Magazine, several key performance indicators (KPIs) quantify how effective your SaaS model is, starting with net profit. Net profit centers all KPIs and provides the monetary sum of business performance.

For those that may not know, net profit measures a company’s profit once all interest and taxes, operating costs, depreciation subtract from revenue. Simply put, net profit contains the monetary revenue value after all other expenses.

On top of understanding net profit, understanding KPIs helps businesses optimize their funnel. Knowing what KPIs to track allows businesses to identify cause and effect relationships, whether good or bad, within their company procedures.

Tracking KPIs presents itself as an art. Marketers need to know how many to track at once, and which to track based on the business.

Next, we’ll see how funnel metrics exemplify several common KPIs that SaaS marketers focus on.

Funnel Metrics

Funnel metrics act as KPIs, and every business standardizes some type of metric within their business. Metrics are quantitative assessments used to track and compare performance or production.

Customer relationship management applications, CAC, and CLV are examples of metrics already discussed. An additional 4 metrics that act as KPIs encompass monthly recurring revenue, churn rates, funnel conversion rates, and the net promoter score.

Monthly Recurring Revenue

One of the easiest metrics to use is the monthly recurring revenue (MRR).

 In general, recurring revenue highlights the amount of revenue expected to incur in the future. The most attractive part about using recurring revenue as a KPI is its stability.  Usually, recurring revenue reliably comes in by set intervals. MRR, as the name implies, calculates revenue by monthly intervals.

An example of recurring revenue are auto-renewing subscriptions, such as Netflix. Businesses gather payments until the subscription ends. Subscription-based companies rely heavily on MRR, although all businesses use recurring revenue as a metric.

 The MRR calculates the predictable total revenue generated by a company by combining a month’s active subscriptions and earnings. MRR considers recurring charges from coupons, discounts, and add-ons. MRR calculations do not include one-time fees.

The average earnings per customer multiplied by total customers a month gives businesses the MRR, which they use to infer future SaaS growth.

Additionally, businesses use MRR to compare monthly revenue contributions and future SaaS growth in a variety of areas. This includes products, marketing teams, sales teams, and company campaigns.

Funnel Conversion Rates

Conversion rates have already been mentioned, and companies universally reel in on funnel conversion. However, businesses rightfully use funnel conversion rates as a KPI tool. Funnel conversion rates allow marketers to evaluate each stage of the funnel.

Each stages’ conversion rates indicate the effectiveness of your funnel model as a whole. In between funnel stages, marketers calculate conversion rates as KPIs. Funnel stage conversion rates are especially helpful when you introduce new marketing techniques.

New techniques come with risk, and the funnel conversion rate offers a quantitative analysis of the technique’s effectiveness.

With this method, marketers know which stage of their SaaS funnel performs well, and what stage does not perform well. Usually, businesses tend to invest in funnel stages that have the lowest conversion rates.

When it comes down to it, funnel conversion rates rely on data, and the most important KPI is data. If you do not track your data, your funnel’s weak points go unnoticed.

Churn Rates

Attrition, or churn rates, measure the rates at which customers quit using a company’s services over a specified period. The churn rate impacts growth enormously if the customer acquisition rate does not surpass the churn rate. Keeping churn rates low influences the growth rate of the business overall.

The churn rate indicates customer satisfaction or lack thereof. Obviously, a high churn rate indicates unsatisfied consumers. Dividing lost customers by total customers for a time period by 100 gives you the churn rate.

Each industry averages a different churn rate that businesses use to compare themselves to competitors. If a company’s churn rate increases well above the average, the business knows a fundamental funnel flaw exists. Customer service, product quality, or a new brand launch may be the issue.

Net Promoter Score

A net promoter score measures the willingness of customers to share your business’s services or products with other potential customers. The score ranges from -100 to 100 and gauges customer satisfaction and loyalty.

The net promoter score calculates customer responses to a single-question survey. Generally, the survey asks consumers to rate the likelihood by which they would recommend your brand to a colleague on an 11-point scale, from 0-10.

Following their rating, customers the net promoter score categorizes into three types of consumers. Promoters give the highest rating, usually either a 9 or 10. They likely love the company’s products or services and enthusiastically share the company with others. The promoters make up the most loyal customers.

Passives consist of the middle group and provide a 7 or 8 score. Passives are likely satisfied with products and services. However, other competitor companies persuade passives to leave your business for service elsewhere. Passives probably do not speak ill of your business or encourage others to give your company business.

Detractors give the lowest score, a 6 or less. Detractors do not care about your company’s services and will likely not return to your company again for service. They may even speak ill of your company to others and persuade people from giving your company business.

Subtracting the percentage of customers who are detractors from the percentage of customers who are promoters calculates the net promoter score. If only promoters responded to your survey, your score would be 100.  If only detractors responded to the survey, your score would be -100. Generally, net promoter scores fall somewhere in the middle.

Final Thoughts

Typical marketing funnels seek to highlight the customer journey, starting from brand awareness down to the purchase of products or services.

Software as a service (SaaS) emerged alongside the Internet and new cloud storage and computing technology. Combining SaaS technology with a typical marketing funnel outline creates the SaaS sales funnel, and businesses versed in SaaS marketing benefit.

The SaaS sales funnel provides a strategic approach to marketing SaaS and leads to a more interactive consumer-business relationship.

Particularly, the SaaS funnel offers modern businesses a new way to approach customer acquisition, business metrics, and customer retention. Technology transforms human communication and floods the world today, much to the advantage of businesses.

Within the last decade, the SaaS market took off. Now, relationship building from a business-consumer perspective presents new challenges and profits both company owner and consumer. Social media platforms, search engine optimization, and SaaS provide new ways to build consumer trust and engagement.

Understanding lead generation, lead conversion, and product sales permit businesses to capitalize on SaaS technology. Customer awareness, engagement, and intent work together to create lifetime buyers and promote brand loyalty.

Perfecting a business’s SaaS funnel and optimizing SaaS strategy encourages optimal growth and production.

Frequently Asked Questions

Check out the following SaaS marketing funnel questions to clarify the process with your sales teams and marketing teams.