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We measure customer satisfaction in all sorts of ways.
ROI, page views, time on site, bounce rates — all of it provides insight but pales in comparison to client engagement.
Client engagement is perhaps the strongest indicator of a customer’s feelings for your brand.
Clients that engage with your brand develop brand loyalty, which is created most notably through likeability and trust.
If they like your brand, they’ll be much more likely to come back and buy from you again.
Truly loyal customers will always choose your brand over the competition and your most loyal customers will even take up the mantle and help you promote your company.
But client engagement doesn’t just come naturally.
It has to be planned and executed to have the desired effect.
Effective client engagement can’t be automated, at least not fully.
It requires commitment and genuine involvement from members of your team to make those personal connections with your customer.
It must be custom-baked into every aspect of your business.
Let’s examine some simple strategies that any company can take to improve their client engagement and develop real, meaningful relationships with their customers:
Most companies view social media in the wrong way.
They see it as a platform, ripe for automation and effective for distributing the content that they publish.
Trust that your customers can see through a hands-off approach on social media.
Even when done well, they can sense when there isn’t a real person behind the scenes engaging with customers.
That isn’t to say that every update you post has to be handled by hand, but in general, there needs to be a coordinated effort to engage and show a little personality to catch your ideal client’s eye.
By 2021, there will be more than 3 billion people on varying social media platforms.
Social media is the preferred way for customers to interact with brands today.
But the key word there is “interact.”
If you aren’t genuinely interacted with your audience, you’ll have a hard time getting customers to engage on any social media platform.
Interaction and engagement aren’t just about taking part in conversations, either.
Brands that do social media well post content that encourages conversation.
Take this Facebook post from Staples, for example.
You wouldn’t think that there would be anything interesting to talk about when it comes to notebooks and office supplies, but Staples manages to take the mundane and make it interesting on social media:
A timely Halloween post featuring some of their most basic products was shared more than 10,000 times across their various social profiles.
A little creativity can go a long way.
There are many ways for companies to encourage client engagement through social media.
Recently, Sprout Social conducted a study that examined the types of posts that lead to purchases.
When you provide real value on social media, your customers listen.
It’s the most direct way to speak to them and develop real, lasting relationships that foster brand loyalty.
Your VIP clients are those that are most important to your business.
They are those that have been with you the longest, bought your products, and referred friends to your business.
They bring a lot more value to the table than a standard run-of-the-mill customer.
A VIP’s long-term value far exceeds what they actually spend at your business.
With that said, engagement with VIP customers is simply worth more to your business.
Each engagement increases the chances of them promoting your business and recommending your products or services to friends or family.
Additionally, the cost of selling directly to a VIP customer is much lower than that of normal customers.
You should always go out of your way to interact with your highest value customers and reward them for their loyalty.
Sending a handwritten (non-automated) letter or email to your VIP customers with a deal on a product they may be interested in is a great way to show them that you are appreciative of their business, furthering the loyalty that they already have.
Building a community around your brand is a great way to get your customers engaged with your brand.
Not only will they have more opportunity to interact with people within your company, but your customers will develop relationships with each other and further the value they receive out of their relationship with your brand as well.
A great example of a branded community comes from the GrowthHackers Community.
Although the company originally started as just a community, in the last few years they have grown into a full suite of marketing software products.
Still, their community continues to thrive and attract some of the largest names in the industry to participate.
This helps to keep the GrowthHackers brand associated with the top figures in the industry while growing loyalty with the other participants.
You don’t have to limit your engagement efforts to your own community, either.
There are likely dozens of communities focused on your industry that you can join and take part in, giving customers and prospects another way to directly communicate with your brand.
The web is full of forums and communities for you to take part in.
Even a simple search for “Startup” groups on Facebook can yield dozens of interesting results:
Find the communities where your clients and ideal prospects hang out, and start engaging in discussions.
Share valuable content and insights with the group and build a reputation. The only thing that you have to worry about is being overly self-promotional, as that will be frowned upon in any public group that you join.
Getting involved in communities that focus on your industry (or those of your ideal clients) can be a great way to foster an engaged client base.
By taking part in public discussions you can start building brand loyalty with prospects that have yet to buy their first product from you, setting the stage for a fruitful engagement.
There are few actions that you can take that foster more brand loyalty than getting your team and customers together in the same location, face-to-face.
Holding a yearly summit for your biggest clients can be a great way to develop deeper relationships and help them get a peek inside how your company operates.
Flying in for a meeting on the golf course is an old school sales tactic for securing and keeping high-value clients happy.
Customer summits also give your customers the ability to have their opinions heard and affect decisions within your company.
Adobe is an example of one company that holds a customer summit every year.
They also conducted a study of the results that attendees experienced from attending their summit that yielded some pretty eye-opening results:
Now, results like this depend on your ability to plan and execute a worthwhile summit, but it does go to show how beneficial one could potentially be.
Content marketing is rapidly growing in popularity.
Almost half of 18 to 49-year old people get their news and information online, according to a study by the Pew Research Center.
As more children that grew up with the web come of age, these numbers will only continue to grow.
Creating content helps to educate your customers, but giving them content that they can interact with takes things to a whole new level.
According to a study from Demand Metric, interactive content outperforms standard content in educating buyers:
There are many types of engaging interactive content that you can create.
Quizzes have become a popular way for companies to learn more about their customers while giving them something fun and interesting to do.
If you’ve spent any time on social media, you’ve likely seen quizzes like the one above.
They can be a great way to engage with customers and help educate them while collecting information and generating leads.
Other types of interactive content that you could publish include assessments, polls and surveys, calculators, contests, and infographics.
Fostering client engagement isn’t just about having conversations.
It’s about giving your clients the chance to engage with your brand in as many ways as you possibly can.
The Internet has changed customer expectations for good.
Today, customers expect brands to promptly answer any questions that they have about your product or service.
If you take too long to respond, they are much more likely to take their business to a competitor.
This is one of the many reasons why software tools like live chats have become increasingly common in recent years.
A recent study examined the revenue returns generated compared to reply times on social media.
Focusing on the airline industry, the study examined how much revenue a Tweet could generate based on how quickly they responded to the customer.
The study showed, resoundingly, that fast replies led to purchasing decisions more reliably by the customer:
Social media replies that came within 6 minutes generated more than double the revenue of replies that came within the 6-22 minute window, and more than 5x the revenue of replies that came within the 22-67 minute window.
To encourage engagement from clients, invite them to be part of discussions.
How many blog posts have you read that never invite the reader to share their thoughts or their opinion on the subject?
It may seem simple, but sometimes prompting your clients to engage with your content is all you need to foster a discussion.
Try replacing some of your lead-generation calls to action with calls for your customers to share their own opinions.
This tactic is particularly effective when you have shared an opinion that is controversial or simply goes against the grain.
While inviting arguments against a position your brand has taken may seem counterproductive, the discussions that it will invite in the comments section and on social media will outweigh any negative effects.
Webinars are an ideal way to deliver information.
They offer all of the benefits of a live seminar with minimal investment and commitment on the part of the brand.
Attendees are also able to attend at their leisure, with a minimal commitment on their part.
Your customers have questions.
Those questions might be about your product, company, industry, or even the people that work at your company.
The best way to facilitate conversations with clients is to give them the chance to ask questions and learn more about your business.
The end of the webinar gives you an excellent opportunity to speak directly to your customers and clients by giving them a chance to ask any questions they may have about the content they just viewed.
92% of webinar attendees want a live Q&A session at the end of the webinar.
This kind of unstructured impromptu Q&A session can quickly get into the weeds and divert from the main subject of the webinar, but even then you are being given the ability to engage with your customers on the subjects that they consider most pertinent.
Customer reviews are an extremely powerful tool and also provide an excellent opportunity for client engagement.
Today 95% of shoppers read online reviews before making a purchase, with only 3% of shoppers saying that online reviews never factor into their buying decision.
A lack of reviews can create big problems with prospects.
Source: Fan & Fuel
The only thing more impactful than having no reviews is negative reviews.
82% of customers seek out negative reviews to help them better understand a product.
For businesses, it might seem like the right move to ignore negative reviews and hope they get swept under the rug, but it’s more beneficial to respond publicly than it is to leave them as-is.
If possible, publicly respond to any negative reviews.
Be professional and courteous.
Dispel any misinformation that you think could mislead future customers, but admit if any mistakes were made and offer to make things right.
Customers trust negative reviews but will be understanding of the fact that not every customer interaction is going to go as planned.
By responding publicly, you display your goodwill and willingness to interact with clients that haven’t had the best experience with your company.
This helps to restrict the impact of the negative review while giving you the opportunity to score points in the eyes of other prospective customers.
To improve client engagement, you have to employ strategies that facilitate genuine interactions.
Customers can tell when they’ve received an automated message.
Getting your brand out there in communities and inviting discussion around the subjects that you cover will not only help you to inform your audience but begin to build relationships with prospects and customers in the process.
Finding ways to bake genuine client engagement into your everyday tasks is a difficult but important step toward creating a loyal client base.
Recurring revenue is the gold standard for SaaS companies, and revenue churn is perhaps the most important metric that they must work to combat.
Churn is the SaaS-killer.
It eats away at your revenue, demands the attention of your most valuable team members, and can cast a dark cloud over the future of your company.
According to a study by Bain and Company, a 5% increase in customer retention can increase profits by 25% to 95%.
That is why SaaS companies must work from Day 1 to improve their churn and fend off churn increases as their company grows, which is all too common of a problem.
Just take a look at this example from Baremetrics, which shows the profound differences in MRR after one year for two different levels of churn:
Without even increasing its growth rate and simply by reducing churn, the company was able to generate an additional $25,000+ in MRR.
In this article, we’ll take a look at how some of the most successful companies in the world have been able to reduce customer and revenue churn through innovative strategies.
You can use these examples for inspiration in your own churn reduction campaigns and work toward a more sustainable future for your SaaS.
Despite being one of the most successful SaaS companies in sales engagement, Groove was in a hole with a churn rate of 4.5% in 2012.
While 4.5 isn’t high for your average SaaS, it was an unsustainable amount for Groove based on their business model.
When management met to discuss the issue in January 2013, it immediately became clear that they didn’t have a full understanding of why their customers were leaving, let alone what they needed to do to fix the problem.
They responded by systematically researching the behavior of their users to better understand those that canceled their subscription.
Their research quickly uncovered a few key differences between customers that stayed and customers that left.
By identifying several red flags, the company was able to identify customers that were at a high level of risk of leaving the company before they actually churned.
Some of the churn red flags that their research uncovered included:
By identifying the triggers that associated strongly with churned customers, they gave themselves a roadmap for improving the issue.
The first thing they did was put together emails that went out to users whose first session were under 2 minutes.
By reaching out to these users and offering a quick Skype chat, the company was able to walk user’s who had issues through using the software.
Their email had a 26% response rent.
Of those that actually took them up on the call, 40% ended sticking around for more than 30 days after the call.
Groove also delivered an email to users who logged in less than 2 times in the first 10 days of creating their account.
This email had a response rate of 15%.
Of those that responded, more than half would continue to use Groove for more than 30 days.
Just by identifying some triggers and sending thoughtful emails to at-risk customers, Groove was able to reduce their churn significantly.
They used these tests as a basis for the complete revamping of their onboarding process with these principles in mind.
After reworking their onboarding process, the company was able to reduce its churn by a whopping 71%.
Identifying behaviors that signaled negative outcomes allowed the company to intervene at key moments and help customers with the problems that they were experiencing.
For SaaS companies, helping your customers to understand the power of your software is half the battle for fighting churn.
When it comes to using emails to reduce churn, there are few companies that do it better than DropBox.
The company uses milestones, triggers, and incentivization to pus their customers toward using their app.
We all receive a huge number of automated emails.
It’s easy to ignore them. DropBox knows this and has done everything that they can to stand out from the barrage of automated emails the average person receives on a daily basis.
Just take a look at this email that they send to customers that have not started using the DropBox app, despite signing up for the service:
DropBox has also made great strides in reducing churn and promoting growth by offering incentives to users who take certain important actions.
For example, inviting friends to the service through email, Facebook, or Twitter allows users to secure more space helped the company to increase their signups by 60%.
You can use incentivization at other points in the customer lifecycle as well.
If you see that specific inaction is correlated with high levels of churn, you can offer your customers something in return for completing the action and reducing the chance that they churn.
Understanding the bottlenecks in your customer lifecycle can show you where your focus needs to be placed and where the best place to offer incentives may be.
Giving your customers something valuable in return for your biggest anti-churn triggers is a powerful strategy that any SaaS can replicate.
Mention helps customers track what is being said about them online.
For a company with a foothold in communication, it makes sense that they would turn to what they know best to reduce their churn.
CrazyEgg published a great piece on companies that reduced churn through effective communication with customers that featured Mention among a few other companies that used similar strategies.
Mention didn’t always have problems with churn.
But as so many SaaS companies do, they began to struggle with it when they found success.
As the popularity of their business grows with a userbase that grew from 50,000 users to 200,000 users, their churn rates quickly became unsustainable.
To combat this, the company started by establishing a few facts about its users.
First, they knew that their paid and free trial members were more profitable, and likely always would be, than the people that signed up for their free plan.
They also established that the most profitable thing they had done thus far was to deliver automated emails to free trial users.
By enticing them to try out new features by teasing them through email, Mention was able to improve their adoption rates.
They put together a 3-month plan.
Using Intercom.io, the company segmented its users according to the different membership types.
They placed a priority on the most valuable users and introduced a new system for assigning support tickets:
The switch to handling support tickets in batch requests every four hours meant that their teams had freed up a lot of time to focus on other goals that they were chasing at the time.
It meant that their teams could spend as much as 50% less time on support, and their levels of customer satisfaction increased as their support teams were able to spend more time helping and communicating with paid users and those on the free trial.
By placing their focus on helping their most impactful customers, Mention enjoyed a 28% reduction in their churn, putting the company in more healthy standing.
In a blog post, Baremetrics founder Josh Pigford outlined the churn problem that the customer was having.
At the start of 2014, the company was experiencing unsustainable levels of churn — 10.3% user churn and 13.1% revenue churn.
Image Source: Baremetrics
These are extremely high levels of churn, enough to threaten the future of the company despite their growth.
They knew they needed to act quick, so the management team at Baremetrics focused all of their attention on fixing the problem.
The first and perhaps most impactful step they took was to remove self-serve account cancellation.
Being able to log in and end your subscription with a company is a perk that many SaaS users enjoy, but is a huge source of churn for many SaaS companies.
Is offering that level of convenience to your users with the customers that you will lose? Baremetrics thought not.
Removing user self-served cancellation served two purposes.
First, it allowed them to actually collect feedback from the people that canceled.
The little textbox they had on the cancellation page wasn’t actually giving them anything useful.
Additionally, they were able to save about 15% of all cancellations simply by requiring that they interacted from someone at the company when canceling their account.
Many of the customers simply didn’t realize that Baremetrics had a certain feature that they were looking for.
Next, they shifted their focus to providing more education to their users. If they wanted them to really dig into their software, they had to give them the tools to do so.
They expanded their help desk, launched several webinars, adjusted their automated emails to deliver more timely education materials, and reached out to users to help them through the process of integrating the software into their work routines.
Intercom.io’s Des Traynor has a unique view of churn.
He argues that not all churn is created equal and that the process of canceling an account actually begins as early as when the account is first created.
Image Source: Intercom.io
Throughout a churned customers lifecycle, there are clear indications that the customer is in danger of canceling their account.
Intercom dives into the engagement red flags of their customers to evaluate what those indications may be and work to offer tools that can help companies to identify their own issues.
While most SaaS companies focus on sending emails out to users that haven’t logged in in a certain number of days, Intercom emails users who have seen a significant drop off in activity, sometimes across an entire team within the company.
They take this as a sign that their software may be losing value with the customer and attempt to address the issue head-on.
By focusing on team usage, the company was combating churn with their most profitable customers.
When a team of 100 people begins to use the software less over time, the more likely cancellation becomes.
By focusing on these specific types of customers, Intercom reduced churn with their most profitable customers, proving that indeed not all churn is created equal.
Buffer has been a big advocate for reducing churn through trigger-based emails.
Identifying the key points of usage that lead to long-term customers and then prompting customers to take those steps can be a great way to reduce churn and improve retention in the long term.
For Buffer, a customer scheduling a lot of Tweets is a good sign that they are getting value out of the service.
Users that let their account sit there without scheduling anything are more likely to cancel their accounts.
But they did notice an anomaly — 33% of their churned users actually used their accounts on the day they canceled them.
This runs contrary to what most SaaS companies experience.
To reduce churn and improve retention, Buffer started emailing their customers whenever their queued social posts ran out.
This prompted them to log into their account and reload their Twitter feed, and always kept Buffer top-of-mind.
By prompting customers to keep their account filled, there was less of a chance that they would cancel their account when their feeds ran empty, which was a trigger that the company had identified as leading toward cancellation.
Churn is often tied to the success of any SaaS company.
To reduce churn is to improve your MRR now and in the future, giving your company a wider runway and improving growth.
There are many strategies that companies can use to reduce churn.
The ones outlined in this article provide some inspiration and good starting points.
However, every SaaS company is different and an understanding of your software and users is essential for success in measurably reducing your churn.
Scaling a Software as a Service (SaaS) company is a difficult task.
Many young SaaS companies struggle to reach predictable revenue growth and even fewer reach truly reliable profitability.
To run a successful SaaS business, you can’t just expect to offer your software through a monthly subscription and watch the success follow.
Every successful SaaS company goes through a thoughtful, data-driven driven decision-making process to continually optimize their sales operations and maximize profitability.
The software business has changed rapidly over the last decade.
In previous years, software companies would make most of their money up front through large fees.
The sales cycle was still a long one, but the time to reach profitability on each individual customer was typically instantaneous.
Modern SaaS companies rely on smaller recurring transactions to generate revenue.
This makes stability harder to come by because you need to attract a consistent stream of high-quality leads and find ways to increase your lead volume as time goes on to experience consistent growth.
Additionally, SaaS companies have to expend a great amount of energy to retain those customers after the initial payment to maximize revenue from each individual customer.
This requires optimization in all aspects of your business including your marketing, sales teams, and daily operations.
You have to find ways to make your business more efficient across the board.
Tracking, measuring, and optimizing for a variety of KPIs and metrics can help you to identify gaps in your strategy and areas for improvement. Having an adept sales team can often mean the difference between mediocrity and exciting growth.
In this article, we’ll be deep-diving into the most relevant sales metrics for SaaS companies.
No matter how “viral” your SaaS business becomes, you need to flesh out a foundation that you can depend on. An efficient sales processes that lead to reliable revenue.
To do that, you’ll need to define what metrics are important to your success, and use that data to help you acquire not just new customers — but the right kind of new customers.
As the SaaS industry has grown, so too have the metrics and methods used to track success.
There are dozens of different metrics that you can use to optimize your sales processes, each bringing its own unique benefits.
Here we’ll cover the most important sales metrics for SaaS companies to track.
These will provide a foundation that allows you to analyze and optimize your sales operations and improve revenue over time.
Let’s dive into the most important and relevant SaaS sales metrics that your company should be tracking.
The foundational big-picture metric for SaaS sales success.
Monthly and annual recurring revenue is a straightforward metric that helps to provide insight into the overall performance of your company as a whole.
All SaaS companies track it to give themselves a top-down view of their companies growth and success.
MRR includes all recurring revenues and does not include one-time sales.
MRR is so critical because ultimately all decisions that you make regarding your sales operations affect your MRR in some way.
Your baseline goal for a decision might be to increase the number of marketing qualified leads (MQL), conversions, upsells, or any other sales consideration — but ultimately it all flows back into your MRR.
When your MRR is growing, the company is growing. When it is shrinking, the company is shrinking.
MRR measures the predictable revenue stream that your SaaS company is able to generate through subscriptions and additional services.
But it is important not to put too much stock into MRR and what it says about your business.
It’s a useful metric.
But it is only a view of that specific moment in time.
Evaluating your sales performance using only MRR is not likely to produce the best results.
For SaaS companies that have a long onboarding time before a subscription starts, a practice that is common in enterprise software models, you may also want to account for committed MRR (CMRR) as well.
CMRR includes revenues that have been agreed to but have not yet had their first payments made.
Sales MRR churn measures the erosion of your MRR due to customers canceling their service (customer churn) or downgrading to a smaller plan.
Keeping a close eye on your revenue churn is important for maintaining growth.
Revenue and MRR churn at directly connected to multiple facets of your business including product and customer success but also play a key role in sales.
If your sales team is not closing quality customers that fit your ideal profile, you’re more likely to experience churn and may need to make alterations in your lead pipeline.
To calculate MRR churn, you can use the following formula:
MRR Churn = lost MRR from downgrades + lost MRR from customer churn
While some churn is to be expected, over 70 percent of SaaS companies have an annual churn rate lower than 10 percent.
Ideally, SaaS companies should aim to reduce their MRR churn rate to less than 5 percent annually, but these figures are highly dependent on your product and industry.
Churn metrics are excellent for evaluating your customer retention and lead generation efforts, but it also provides insight into how your sales teams have set expectations for your customers.
It’s also important to remember that MRR churn and customer churn can provide very different results.
If you have a single customer cancel their account, but that customer made up 25 percent of your total MRR — your customer churn rate will be very low while your MRR churn will be high. It’s all about context.
Customer Acquisition Cost is designed to tell you how much your SaaS company spends to acquire each new customer.
It can provide insight into both your marketing and sales operations and help you identify areas for improvement.
For most SaaS companies, the costs of acquiring a new customer can be boiled down to two unique factors.
First, the costs of generating a new lead.
This is directly connected to your marketing costs. Second, the costs of having your marketing and sales teams convert that lead into a new customer.
Your marketing teams play a role in this as they use marketing materials to nurture a lead through the SaaS sales funnel.
Your sales teams also play a big role in this as they are responsible for closing the sale and touching base with the customer toward the end of the nurturing process.
The simplest way to calculate CAC is to take your total sales and marketing costs over a given time period and divide that by the total number of new customers.
Customer Acquisition Cost is one of the most important SaaS sales metrics because it directly affects how much you can afford to spend to acquire each new customer.
If you offer trial plans for free, it is important that you calculate the acquisition cost of those customers separately than through your paid channels.
Image from Profitwell
Using CAC as a basis, you can take the metric a step farther to better understand your position.
CAC Payback Period measures when a customer actually becomes profitable for your business.
CAC Payback Period measures how long a customer will have to be a subscriber before their membership becomes profitable for your company.
For instance, if you spend $40 to acquire a customer on a $10 per month subscription plan, it will take 4 months before you break even on that customer, giving them a CAC Payback Period of 4 months.
The formula for calculating the CAC Payback Period is simple.
You just divide the cost of acquiring the customer by the monthly revenue they bring in to figure out how many months it will take until your company breaks even on their acquisition.
Average Revenue Per Account (ARPA) measures how much revenue is brought in by your average customer on a monthly basis.
Tracking these changes can be helpful for evaluating a few different facets of your business including how well your sales teams are closing new customers on higher paying plans and how well your customer success teams are upselling existing customers.
Calculating ARPA is simple.
You just divide your MRR by the number of active accounts that you currently have.
This gives you the average revenue generated by each individual account.
Many SaaS companies choose to track ARPA for new and older accounts on a separate basis.
This can help you to compare how changes that you have made are affecting the average revenue of each customer and identify how much impact your changes are having.
Customer Lifetime Value (LTV) measures the total amount of revenue that a single customer will generate over the lifetime of their engagement with your company.
For SaaS companies, this number reflects the life of their subscription and all secondary services or products that they purchase.
LTV provides clear insight into how much each individual customer is contributing to your revenue.
It also sheds light on how much you can spend to acquire them, making LTV a great metric to pair with CAC. In isolation, both metrics are less helpful than when they are paired together.
You can measure LTV of segments and buyer personas to help you identify the most profitable customers to target and evaluate where you currently spend your marketing dollars.
Calculating LTV is simple and can be done using ARPA and customer churn rate:
For many SaaS companies, LTV is a foundational metric.
It provides clear insight into how much you can expect each customer to generate and is used to inform marketing, sales, and retention decisions.
How much does it cost your company to retain customers?
Once a lead becomes a customer, your focus as a company shifts toward helping them to use your software effectively and retaining them as a customer in the long term.
While this metric does fall a bit outside of the “SaaS sales metrics” category because it includes costs from customer success and support efforts, it does play a direct role in your CAC Payback Period and LTV of your customers.
CRC can also influence the sales strategies that you employ. Companies that have to invest heavily in retaining customers may want to look into changing their nurturing and sales practices to ensure that new customers are properly vetted and positioned for success with your software.
CRC includes all tools, materials, and staff time that your company uses to ensure that your customers stay on board.
You can help to reduce CRC with thoughtful product design, developing educational content that would ordinarily be handled by a customer success rep, and conveying clear expectations to your customers when they convert.
Remember, you calculate CRC using the total number of customers that you have retained through your efforts, not your complete customer base.
You can calculate CRC using the following formula:
While ARPA examines the average revenue that a customer brings in on a monthly basis, Average Selling Price (ASP) evaluates the initial cost that a customer pays at the time of conversion.
For most SaaS companies, this number will be directly tied to the price of your plans.
Some are able to creep this number up by offering other professional services, add-ons, or making an effort to upsell customers to higher plans.
Having an understanding of your ASP is critical for evaluating the effectiveness of your sales teams.
Your ASP also plays a direct role in your Customer Acquisition Cost.
Companies that make an effort to get customers spending more at the point of conversion can keep a close eye on ASP when evaluating individual sales reps.
The sales model you employ for your SaaS start, whether transactional, self-service, or enterprise, will play a direct role in your ASP.
Companies that have a higher ASP (such as in enterprise sales), will have a higher viability for high-touch sales strategies.
Companies with a low ASP may be forced to opt for self-service and other similar sales models.
Win Rate offers the most straightforward way to evaluate the efficiency of your sales teams.
How often are your sales reps closing the deals that they have in front of them?
Win Rate examines the number of deals won as a percentage of the total possible deals.
It is sometimes represented as a dollar value of those deals, but the standard Win Rate formula represents it as a percentage value.
A high Win Rate is indicative of an effective sales team that is closing deals. It is also indicative of high lead quality.
Many SaaS companies will evaluate their Win Rate by segment, comparing it to other metrics like LTV to determine the most profitable markets and segments for their business.
Lead Velocity Rate is critical for projecting future sales for your SaaS companies.
Too many companies get stuck using current metrics to assess the stability of their SaaS business without projecting into the future at all.
Lead Velocity Rate is also sometimes known as Lead Momentum or Qualified Lead Growth.
It’s a clean and effective way to measure the growth of your monthly lead generation and therefore the number of opportunities that your sales teams are working with.
By pairing this metric with Win Rate, you can project future sales.
Lead Velocity Rate is represented as a growth percentage.
You can calculate Lead Velocity Rate by subtracting your number of leads from the latest month (t), from the previous month (t—1), and then dividing that by the previous month’s leads and multiplying by 100.
Here is the formula:
LVR is a great metric for projecting the future of your sales and marketing efforts and assessing recent changes in your strategies.
Any SaaS owner that stays up to date has seen the explosion in data-backed strategies in the industry in recent years.
There are dozens of different metrics that a SaaS company can use to evaluate their strategies and project the future of their company.
The metrics covered in this article will provide you with a good foundation for evaluating your sales efforts and growing your revenue with thoughtful, data-backed strategies.
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 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.
For SaaS companies, there is 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) 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 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.
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.
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.
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:
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.
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 occurring.
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:
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.
As we mentioned earlier, the type of customers that you attract into your sales funnel plays 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.
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.
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.
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.
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 order, 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.
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.
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 a genuine interest in your product.
Throwing them into a pile of “lost leads” is just throwing money down the drain.
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.