by Ryan Bozeman
April 10, 2018

For SaaS companies, there is nothing more important than working to improve your SaaS sales funnel. Your funnel plays a critical role in your business, ushering visitors toward becoming customers and keeping those customers on board after they begin to use your platform.

There is always room to improve, and failing to audit and optimize your SaaS sales funnel is only leaving money on the table. After fighting so hard to launch your business, foregoing funnel optimization can undercut your hard work and keep your company from reaching its potential.

For SaaS companies to grow reliably, an effective funnel is an absolutely necessary piece of the puzzle. A great SaaS funnel doesn’t just convert leads into customers, it convinces those customers to stay with you in the long-term. But, to properly optimize your funnel, you need to understand of what makes a solid funnel and how to audit your funnel to find hangups and issues that are affecting your conversion rates. To do that, you’ll need to track important metrics that speak to the effectiveness of your sales funnel.

Important Metrics to Track

For SaaS companies, there are an endless number of KPIs that you can track, with more being added to the list with each passing year. It’s important that you don’t get too bogged down in the stats, and instead just focus on a few key metrics that speak to the health of your company in the most straightforward way. Here are a few metrics that are critical to SaaS sales funnel optimization:

Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is the most straightforward way to evaluate the health of your subscription SaaS business. Keep in mind that MRR does not include one-time transactions, so for companies with a lot of revenue coming in through one-time transactions, MRR may not provide a complete picture.

Ultimately, MRR is probably the most critical metric for measuring the health of subscription businesses. It also accounts for retention and churn. How much money are you actually bringing in? The goal of a sales funnel is to continually increase your monthly revenue with a steady stream of new customers. No other metrics really matter if you find that your MRR is falling faster than you can attract new business. That would speak to serious issues in your sales funnel that need to be corrected.

Customer Lifetime Value (CLV)

Customer Lifetime Value is a metric for measuring the profit that your SaaS company makes from each customer that you bring in. It is an important metric for sales funnels because it sheds light on a few different areas of your business, most notably your ability to convert new leads into paying customers. The initial marketing that you do in the early stages of the sales funnel set the stage for your interaction with a prospect and also plays a role in how long they subscribe to your product.

Knowing your CLV tells you how much you can afford to spend when acquiring a new customer. It informs your marketing, sales, and advertising processes in a way that other metrics are not capable of.

Calculating CLV is fairly simple. To calculate it, you’ll need to know your Average Revenue per Account (ARPA), your gross margin, and churn for your company.

metric formulas SaaS analytics

Source: Profitwell

Customer Acquisition Cost (CAC)

For many SaaS companies, acquiring new customers is the most expensive part of your budget. Between advertising, the time and effort that goes into providing product demos, required software licenses, and other costs associated with bringing new customers on board it can really begin to add up.

This is why Customer Acquisition Cost (CAC) is so important. The metric provides you with a  marker for how much you spend to acquire each customer. It encompasses all costs associated, not just your advertising spend.

CAC speaks to the health of your business on several fronts and can be a great metric for opening your eyes to wasteful spending. An effective SaaS sales funnel will drive down your CAC over time, giving your marketing teams more wiggle room to experiment with new traffic sources and strategies. Additionally, CAC helps to determine your real profit margins while optimizing for customer lifetime value.

Luckily, calculating your CAC is relatively simple. You take your total sales and marketing expenses over a defined time period, then divide by the number of customers in that same period.

Customer acquisition cost formula

Source: Profitwell

Conversion Rates

Your ultimate goal is to increase conversion rates throughout your funnel, both in terms of your overall conversion rate as well as at each separate step through your SaaS sales funnel. By digging into the steps in your funnel and examining the conversion rate for each step, you can become aware of issues within your funnel that you otherwise wouldn’t know existed.

Total Leads and Opportunities

Everything that you have read so far is moot if you aren’t generating enough leads and opportunities to keep your pipeline full and sales team busy. A report from HubSpot highlighted this fact, detailing how teams with fewer than 50 opportunities per month were more than 3x as likely to miss their revenue targets. You can see the full data from the report in the graphic below:

SaaS funnel optimization

Churn

Without knowing your churn, metrics like CLV and MRR aren’t accurate. It is important that you have accurate figures for both customer churn and revenue churn. Your customer churn is the number of customers that you lose within a certain time period, or how many companies fail to renew their subscription. Revenue churn represents the lost MRR as a result of customers failing to renew or leaving your service.

Audit to Identify Problem Areas In Your Funnel

Before you can start optimizing your SaaS sales funnel, you have to identify where your biggest problem areas lie. To do this, you’ll have to break down the different steps within your funnel and identify exactly where issues are occuring. Like any optimization split test, it may take several tests to truly identify issues and your first guess may not turn out to be right.

This can be tricky. If you notice that your conversion rate from Step C to Step D of your funnel is much lower than expected, common sense would tell you that the problem lies somewhere in Step C. Perhaps the way that you are conveying information is confusing or just isn’t persuasive.

While that will be the case a majority of the time, sometimes the actual problem is found outside of the actual step in the funnel. For instance, you might not have done a good job of setting your customers up with a basic understanding of your software leading up to that step, resulting in the lower conversion rate. Without addressing that issue you may never reach your desired conversion rate without re-working earlier steps in your funnel.

The main point to take home here is that funnel optimization is a process. Sometimes the problems within the funnel are not easily identifiable without experimenting and testing. SaaS funnel optimization is an ongoing process, the work never ends.

There are a few questions that you should ask yourself as you attempt to identify problem-areas within your SaaS sales funnel:

  • What are your conversion rates for each step in your funnel and how do they compare to industry benchmarks? I am hesitant to recommend relying too heavily on industry benchmarks because every company and audience is different, leading to wildly different results. But they can provide some limited insight into the effectiveness of each step in your funnel.
  • What have customers said about your funnel? What questions do they ask? Customer and lead feedback is the most important tool that you have at your disposal. Has anyone complained about becoming confused during the sales process? Have they asked questions about your service that should have been answered somewhere within the funnel? Questions from customers can be a great starting point for identifying points of friction within the funnel.
  • Are you attracting the right customers? A low conversion rate is not necessarily reflective of problems within your funnel. If you are attracting customers that are outside of your ideal audience, you can’t expect them to convert at a high rate. If you sell farming equipment but have a funnel filled with stock brokers, you can’t expect success. Sometimes the problem isn’t in the funnel, but in your marketing efforts.

Auditing your sales funnel always begins with a guessing game at some level, especially with longer funnels. It’s just impossible to intuitively know where the exact issues are without doing some testing first. However, using the data that you have on hand can help you to make educated guesses on where improvements can be made. Use your KPIs and customer feedback to drive your initial split tests in SaaS sales funnel optimization.

Optimizing for Specific Personas

As we mentioned earlier, the type of customers that you attract into your sales funnel play the largest role in its effectiveness. If you have built a sales funnel for one type of customer but your lead list is mostly populated with another type, you’re going to have a hard time finding success. You can make changes to your sales copy, landing pages, and email sequences all day long, but if you are speaking to the wrong person those changes are never going to truly hit home with prospects.

All SaaS businesses should focus on attracting their ideal customer, and their sales funnel should reflect that as well. Start by auditing your lead list to make sure that you are actually attracting the right kinds of customers. The types of customers that end up in your sales funnel depend heavily on traffic sources and marketing techniques. If you find that you are attracting the wrong types of customers, your optimization process needs to start there.

To convey the importance of this point, let’s take a look at a case study from Jerry, a software development company founder. Jerry was having a problem landing customers, despite having a good number enter his sales funnel. He had run advanced tests on his website, re-worked his ad campaigns, and attempted to optimize his marketing across several channels but still wasn’t landing any customers through his sales funnel.

As time went on, he became increasingly dismayed by the situation and started to try solutions that weren’t backed by his data. The first of these solutions was to reduce the free trial time for his service and add a credit card wall to the signup process. These changes did more to hurt the business than help.

When that didn’t produce any results, Jerry enlisted a growth strategist to help him identify what his issue was. The growth strategist started by helping Jerry to define his ideal customer — the type of person that would immediately receive the most value from his software. In doing so, they also talked about the types of customers that were wrong for his business as well. With a stronger understanding of his ideal customer, Jerry was able to make changes to his sales funnel that were designed to attract his ideal customer and conversions started to flow.

Collect Feedback Via Surveys

If you think you have your ideal customer pinpointed but still aren’t seeing the results that you’d like to, asking your visitors and customers questions can be a great way to better understand them. Try sending surveys out to leads and customers to gain a better understanding of what matters to them and figure out what you can do to attract them at a higher rate. Additionally, you can survey individual customer segments to gain a deeper understanding of each particular segment that you cater your funnel to.

For example, if you surveyed only customers that used your software for a few days before never logging in again and moving on to a different solution, you could gain insight into what they felt was lacking in your product or marketing.

Did your marketing communicate the wrong message to them? Did it fail to address how it solves their pain points? Did something about your software convince them that you weren’t the right solution for them?

Creating useful surveys is part art and part science. You can’t just ask random questions and hope for insightful answers that help you to optimize your SaaS sales funnel effectively. Be direct, and go into each survey with a goal to learn specific information. Organize your data efficiently after conducting the survey and use tools to help you sift through it and identify patterns.

Customer feedback is an important tool in your arsenal, but conducting surveys doesn’t do you much good if you don’t know how to read and interpret them. Use feedback from your ideal prospects to shape your sales materials and optimize your funnel.

Focus on Specific Problems & Pain Points

A common mistake made in many SaaS sales is to try to be everyone’s everything. Intuitively, it makes sense to position your product as a “wonder solution” to many of the ills that your clients will face on a daily basis. But, part of the process of identifying your ideal customer is identifying what is most important to them. Research has shown that focusing on specific pain points in discussions is closely tied to won deals.

Once you have identified their biggest pain points, you can zero in on a single pain point and present your product as a solution to that specific problem throughout the funnel. Even if your product is more useful than your initial marketing would imply, that is something that they can learn as they go through the process of familiarizing themselves with your software.

A laundry list of features often doesn’t lead to paying customers. Most of your customers aren’t coming to you looking for a long list of their issues to be solved. They are looking for a very specific issue to be solved and anything that you can provide on top of that is just a bonus.

Don’t try to be the solution to every single problem that your target customer might have. Instead, focus on positioning yourself as the solution to their most pressing problems and let them discover the other benefits of your software as they begin to integrate it into their daily workflows. Let that idea guide the content in your SaaS sales funnel, and you’ll have a much easier time with the optimization process.

Common SaaS Sales Funnel Mistakes

Getting customers to enter your funnel and stay through the process of becoming a customer is difficult. Conversion rates are low, no matter how great your product is. However, there are some common SaaS sales funnel optimization mistakes that many companies make that could be holding them back without them even knowing. Take a look at your own SaaS sales funnel and see if any of these common mistakes might apply to you as you begin your audit.

Too Much Content, Too Many Stages

Are you overwhelming your customers with content? Are you giving them too much choice? In the restaurant industry, a common mistake that new restauranteurs make is creating menus that are too large. They contain too many items, and customers feel overwhelmed when ordering. If they aren’t sure what to roder, it’s easy to make a choice that leaves them feeling underwhelmed and makes the restaurant harder to recommend to a friend.

The same can be said for SaaS companies who are simply throwing too much information at their customers for them to digest — they can become quickly overwhelmed, tanking your conversion rates throughout your sales funnel.

You don’t have to strip away features or hack your sales funnel to pieces. Instead, try to identify where you might be asking too much of your leads. Simplify your sales funnel to hone in on specific pain points for specific customer types. Create tightly-designed content around those subjects and cut the fat and you are likely to see your conversion rates rise.

Neglecting Lost Leads

When a lead stops interacting with your sales materials, what happens? For most SaaS companies, they are eventually thrown into a list of “lost” leads and are never contacted again, regardless of how good of a fit that they might have been. Only 24 percent of sales emails are opened on average. This means that many of the leads that enter your system won’t end up buying, regardless of how well positioned you are to help them.

Instead, try to get lost leads back into your sales funnel through remarketing and email sequences. Remarketing uses web technology to target ad campaigns to users that have previously shown interest in your products and services.

Source: PCG

Remember that sometimes the timing is just not right for every prospect. Maybe they have to wait for budget approval. Maybe they were just conducting some initial research for a purchase they planned to make weeks or months down the road. The point is that just because they didn’t convert when you initially captured the lead, doesn’t mean that they didn’t have genuine interest in your product. Throwing them into a pile of “lost leads” is just throwing money down the drain.

Bringing It All Together

Auditing and optimizing a SaaS sales funnel is a tough task. Issues could lie anywhere throughout the funnel, affecting the lead’s journey. Identifying these issues often requires ongoing split testing. However, using data and customer feedback to pinpoint problem-areas during an audit can help to simplify the process and provide some initial direction.

For most SaaS companies, the best decision you can make is to simplify your sales funnel. Focus on converting a specific customer persona and positioning your product as a solution to their most pressing pain points. Don’t try to be everything to everyone. Instead, try to be extremely useful to a small subset of your potential customer base. As you segment your leads, you can create separate processes and funnels for each customer segment.

SaaS sales funnel optimization is an ongoing process. There are always changes that can be made that will lead to positive improvements. If you’ve never done sales funnel optimization before, use feedback and data to help you pinpoint problem areas within your funnel and get started. Over time, funnel optimization will lead to higher revenue and a more consistent sales pipeline that puts your company in a position to grow.

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