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Our modern world is driven by software. In both our personal and professional lives, we rely on web-hosted software to accomplish our goals. Whether they involve updating colleagues about your latest project over a Zoom call or simply unwinding at home with Netflix, they will involve cutting-edge software products.
This increased reliance on software has proved to be a boon for the software as a service (SaaS) industry. In 2023, the SaaS market size was valued at $273.55 billion and is projected to reach $317.55 billion in 2024.
The industry’s impressive annual growth rate means that companies selling software products will have tremendous opportunities for scaling and expansion for companies selling software products. Learning the intricacies of SaaS sales and everything it involves is more important than ever. Consider this article your starter guide to the nature of SaaS sales and how to accurately measure and positively boost your sales performance.
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SaaS sales: How software is sold
Readers of a certain age will remember how software used to be sold in physical components, like compact discs (CDs). You had to purchase the CD and install it onto your computer to gain access to the software. After installation, you could only access it on that specific computer.
Not only are SaaS products more accessible, but they are also more user-friendly and scalable. SaaS sales have completely revolutionized the way consumers buy and use software products. Today, most organizations have become reliant on SaaS products to carry out most—if not all—of their business operations. A 2020 report on the state of SaaS by BetterCloud found that SaaS applications accounted for 70% of total company software use.
Learning the ins and outs of SaaS sales is essential to serve the expanding market of SaaS users. Let’s look at how they differ from traditional sales and how SaaS sales representatives can tailor their approach for their unique product.
SaaS selling: Not your average sales process
SaaS sales reps are tasked with selling very specialized products. The amount of thought that goes into a purchasing decision for SaaS is orders of magnitude greater than the amount of thought required for, say, a packet of spaghetti.
Even when compared with traditional software products, the SaaS sales process looks quite different in several key aspects.
Lead generation
Finding qualified leads is labor-intensive, especially when it comes to B2B SaaS solutions. Companies often have multiple decision-makers who have a say in purchasing a SaaS solution. The marketing team must nurture each of these leads so that they are primed to talk with a SaaS sales rep.
Investing in quality lead generation software is a worthwhile effort that can have valuable returns for your SaaS sales team.
SaaS sales rep expertise
Would you take your car to a mechanic who doesn’t know how to change a tire? Definitely not, and you’re not likely to buy software from a SaaS sales rep who seems uninformed about their product, either.
SaaS solutions are highly specialized and technical products with a host of features that require a certain level of training to use effectively. An effective SaaS sales rep needs to know how to use them like an expert. They should also be able to convey its value, present different use cases, and clearly outline the benefits of purchasing.
Demos and trials
Clients will only purchase a SaaS solution once they are convinced it can add value to their business. That’s why many SaaS companies offer free demonstrations or trials to test the software. These draw out the length of the average SaaS sales cycle.
SaaS sales reps need to engage with their prospects over an extended period and schedule multiple interactions before completing one sale. Occasionally, sales reps may need to bring in product engineers or marketing team members to explain how the solution works to the prospective buyer. This level of time and effort is unique to SaaS.
Ongoing client relationships
Since SaaS sales are essentially about selling continued access to web-based software, sales reps might also be expected to play the role of an account manager after converting a lead into a customer. Clients expect their providers to help them adopt and integrate their solution with their organization’s technology framework. Usually, the SaaS sales rep provides the client with this assistance post-sale.
Subscription model
One of the most critical differences between SaaS sales and other forms of selling is the objective. In most types of sales, customers need to be convinced to make a one-time purchase. However, SaaS sales teams have to convince prospects to pay a recurring subscription fee.
For enterprise technology, where SaaS companies provide solutions for large companies, sales reps have to meet with several decision-makers before finalizing the terms of a contract. Since contracts and subscriptions must be renewed regularly, SaaS sales reps need to stay in contact with their clients for several months and years.
Cross-selling and up-selling
SaaS sales teams have more complex objectives than merely getting customers to renew their subscriptions. Flexibility and scalability are two key selling points for SaaS solutions, and they allow SaaS sales reps to increase annual recurring revenue from their existing client base. Throughout the customer journey, an effective SaaS sales strategy calls for reps to offer additional solutions and services, adding value while also increasing contract revenue.
The six points mentioned above illustrate how the SaaS sales process differs from more traditional sales methods. Because SaaS sales are so unique and require a higher level of preparation and investment, SaaS providers might see a higher average customer acquisition cost (CAC). But if your SaaS sales strategy is sound and performing as intended, the high CAC will be offset by a correspondingly higher customer lifetime value (CLTV).
SaaS sales cycle vs. SaaS sales funnel
If you want to find success in selling web-based software, it’s essential to understand the difference between the SaaS sales cycle and the SaaS sales funnel. Though they sound similar, they are two distinct concepts, and evaluating them as such will add depth to your SaaS sales strategy.
The SaaS sales cycle is centered on an individual customer and all the stages they go through during the sales process. Meanwhile, a SaaS sales funnel, or sales pipeline, refers to a pool of prospective customers for your sales team to target and the stages they go through before making a purchase.
The SaaS sales funnel includes customers who may not have yet interacted with sales reps, but the SaaS sales cycle begins only when the sales rep and prospective customer make contact, either directly or indirectly.
When you optimize both your sales cycle and sales funnel, you’re likely to see a lot more success in SaaS sales. In the following sections, we’ll cover both these concepts and look at ways SaaS companies can use this understanding to boost their future sales.
Five stages of the SaaS sales funnel
The SaaS sales funnel includes every step of the customer's journey, even before a SaaS sales rep contacts them. However, when SaaS companies prepare the right strategy and implement effective measures at every stage, their conversion rate increases, making the sales team’s job easier.
Let’s see how this works in practice. Consider the example of a SaaS provider that offers companies live chat solutions for websites. Live chat is precisely the type of SaaS solution many companies want to implement as they embrace the 21st-century digital transformation.
Here are some steps that the SaaS company can take at every stage of the sales funnel to improve the odds of making a sale:
1. Awareness
The first stage of the SaaS sales funnel involves making your target consumers aware that your solution is available. At this stage, it is more of a marketing exercise than a sales exercise.
In our example, the live chat SaaS provider could pop up on an ecommerce entrepreneur’s radar through various channels, such as social media, search engine optimization (SEO), or advertisements.
2. Interest
When you have a feature-rich SaaS solution that meets your target audience’s needs, awareness leads organically to interest. Ecommerce websites need ways to engage with their customers, so the entrepreneur in our example will start to entertain the idea of using the live chat SaaS solution. This could lead them to visit the SaaS provider’s website and sign up for a free trial of the live chat software.
A free trial is an excellent example of how SaaS companies can entice interested buyers to demonstrate their interest. This is a valuable source of marketing-qualified leads (MQLs) for the SaaS sales team, as they can contact customers who have booked a free trial and initiate a direct conversation.
3. Evaluation
In the third stage of our SaaS sales funnel example, the ecommerce entrepreneur has had their first interaction with a sales rep and activated the free offer. The live chat provider offers customers a 14-day free trial, which doubles up as the evaluation stage for potential long-term customers. This is the point where the customer is taking the SaaS solution for a test run and seeing how well it works for their use case.
If the live chat provider wants the 14-day free trial to lead to an ongoing subscription, it must deliver a smooth and positive customer experience.
4. Engagement
The 14-day free trial has ended. The ecommerce website saw an increase in visitor queries over the trial period, making a convincing argument in favor of the live chat solution. The potential customer just needs a nudge in the right direction to sign up for a subscription plan.
On the last day of the free trial, the sales rep emails the entrepreneur with a special, limited-time offer for new customers. The solution is offered at a very attractive discounted price. By making their client the right offer at the right time, the SaaS sales rep gives the entrepreneur a compelling reason to make a purchase.
It’s imperative that SaaS sales reps continue to engage with prospects during this stage. Customers may be convinced about your SaaS solution’s usefulness but have reservations about the price or the technical expertise they need to make the most of it. Keeping lines of communication open and engaging with customers is essential to moving them down the SaaS sales funnel and eventually converting.
5. Purchase
The final stage of the SaaS sales funnel involves converting a prospect to a buyer. Convinced of the live chat SaaS solution’s utility in their online store, the e-commerce entrepreneur agrees to sign up for a SaaS subscription. The SaaS sales rep should then arrange onboarding and training sessions for the client and remember to continue servicing the account over the customer's lifetime.
For example, as the client’s ecommerce store grows and attracts more customers, the SaaS sales rep can offer more accounts on a single contract or other convenient and scalable SaaS solutions.
To create and manage an efficient SaaS sales funnel, you need to be aware of every single customer touchpoint and use it as an opportunity to nurture leads. Multiple departments (marketing, product management, and customer service) should work with the SaaS sales team to get the most out of the sales funnel.
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Five main phases of the SaaS sales cycle
SaaS sales cycles involve several preliminary phases before the sales reps can close a deal. Customer retention is especially important for SaaS companies, so taking the right steps earlier in the sales cycle can help create positive outcomes later on.
Let’s examine each phase of the SaaS sales cycle in more detail.
1. Lead discovery and lead generation
The success of SaaS sales depends on identifying the right leads to target. Conducting market research to identify leads and using lead generation software helps SaaS sales teams find prospects for their solutions.
This is a multi-layered process, especially for enterprise SaaS solutions, where several stakeholders and decision-makers are involved on the customer’s side when contemplating a purchase.
2. Customer outreach
This is the phase where the SaaS sales rep’s job begins in earnest. Once they acquire or are provided with a list of leads, SaaS sales reps need to begin connecting with their prospects.
There are several ways for SaaS sales reps to connect with potential customers:
- Cold calls
- Emails
- Social media
- In-person networking
This phase sets the tone and lays the foundation for all future interactions between the potential customer and the SaaS provider.
3. Sales qualification
Preparing an ideal customer profile (ICP) is an essential to your SaaS sales strategy. It will help you in every phase of the SaaS sales cycle, including lead discovery. However, the ICP is most useful in the third phase, which is sales qualification. The more attributes a prospect has in common with your ICP, the better qualified that lead is.
Sales qualification helps SaaS sales reps decide which leads are worth pursuing, allowing them to exert their best efforts for high-value leads with high chances of converting.
4. Demonstrate value
Sales qualification helps your sales team identify which prospective customers can benefit the most from your SaaS solution. This leads to the fourth phase of the sales cycle, which is where your reps reach out to the potential client to demonstrate the solution’s value to their organization.
SaaS customers generally require more convincing before they agree to purchase and sign up for a subscription, so this phase might become protracted as sales reps go back and forth with prospects while addressing doubts and overcoming objections. The fourth phase of the sales cycle includes the time spent arranging demos for the client or the duration of the free trial period on offer.
5. Negotiation and closing
Once a client is convinced that a SaaS solution will add value to their company, all that’s left is to finalize the contract details. This will include points like the number of software licenses included with the subscription, contract length, subscription fee, and other variables. Once the provider and client agree on these terms, a deal can be reached.
It’s important to remember that making a sale is not the end-point of the SaaS sales cycle. SaaS sales reps need to nurture every lead they convert even after conversion to ensure each client generates optimal revenue during their customer lifetime. There are always opportunities to cross-sell and upsell SaaS solutions, and your sales team must be ready to capitalize on them as soon as possible.
Three common SaaS sales models
By now, you’re well on your way to understanding how to succeed in SaaS sales. We’ve already covered three essential aspects of SaaS sales: the sales process, sales funnel, and sales cycle. However, to fully appreciate the unique nature of SaaS sales, you need to discuss one more important concept: your SaaS sales model.
A SaaS sales model is the overarching strategy that informs your operations as a SaaS provider. The SaaS sales model you choose for your company will impact every other aspect of your operations, from your target audience and number of sales reps to your pricing strategy and approach to customer interactions.
Think of the aspects discussed earlier (sales process, sales funnel, and sales cycle) as strokes of paint. Your SaaS sales model represents the canvas, the foundation on which you can design the rest of your SaaS sales strategy.
The SaaS industry is very crowded and highly competitive. Picking the right SaaS sales model could mean the difference between long-term success and failure for your business. There are several ways to approach SaaS sales, but among them all, there are three that are more popular and frequently used than the rest.
Let’s look at the three most common SaaS sales models in greater detail:
1. Transactional sales model
One of the most widely used SaaS sales models is the transactional model. It’s easily scalable, which contributes to its popularity. It’s heavily favored by SaaS companies, especially those that target small- and medium-sized businesses as their clients in the B2B sector. The transactional model is ideal for higher-priced SaaS solutions since customers will require a level of personalized service before becoming comfortable enough to make a purchase.
A transactional SaaS sales model relies on collaboration and cooperation between the marketing and sales teams. Combining marketing campaigns and sales outreach helps move prospects along the SaaS sales funnel. The marketing team discovers and generates leads for the sales funnel, and the SaaS sales team works to increase the conversion rate.
SaaS sales reps working within a transactional sales model must display an impressive knowledge of the software and the customer’s needs. By tailoring the offer to each individual use case and offering an attractive tiered pricing structure, SaaS sales reps can convert leads to new customers and generate additional revenue from existing customers.
2. Customer self-service model
While a transactional sales model works well for SaaS companies selling expensive web-based software, an alternative option is more effective for lower-priced SaaS solutions. Because of their lower price points, the best SaaS sales strategy for these solutions involves selling at a high volume. Rather than wasting your SaaS sales team’s energy in chasing unreasonably high targets, you can use a self-service SaaS sales model and entice potential customers to come to you.
The customer self-service model relies on the strength of your marketing strategies to draw in customers. It requires minimal-to-zero involvement from sales reps. This model lets SaaS providers achieve a high volume of sales, even if the company doesn’t have a dedicated team of SaaS sales professionals.
Your Netflix and Spotify subscriptions are prime examples of the self-service SaaS sales model. Most SaaS companies using this model attract customers with a free trial or cost-free subscriptions for a limited period.
3. Enterprise sales model
The final SaaS sales model we’ll cover in this section is enterprise sales, and it’s the big one. It can generate the most revenue for SaaS companies but t also requires the most investment and effort in sales operations. This model is perfect for B2B SaaS solutions with a high price and low sales volume, whose consumers are large businesses with hundreds of employees.
The enterprise sales model works best for SaaS products that are designed to work on a large scale, highly specialized for their functions, and often tailored specifically for a client’s use case. Because the enterprise sales model has a high average selling price (ASP) and targets big companies as clients, reps have to meet with and win over multiple decision-makers within the client organization. Your SaaS sales reps will also have to work closely with product engineers to arrange for demonstrations and training sessions for customers at various stages of the sales funnel.
Of the three common SaaS sales models, the enterprise model has the longest sales funnel and the most potential to generate annual recurring revenue. Now that you’re familiar with these different SaaS sales models, you can choose which one best suits your business and use it as a starting point for your SaaS sales strategy.
Useful technologies for SaaS sales
A SaaS sales professional’s job is to sell software, so it’s fitting that they would rely heavily on software tools themselves. SaaS companies can use several sales and marketing tools to improve their sales figures, grow their customer base, and boost their sales team’s efficiency.
Here are some of the key technological tools that SaaS sales reps can use to deliver the best possible results:
Lead generation software
This valuable marketing tool broadens the top of the sales funnel. Using lead generation software allows the marketing team to prepare a list of likely prospects to pass on to the SaaS sales professionals.
With lead generation software, SaaS sales reps can learn essential information about prospects to help them make a compelling case for buying the solution.
Sales automation software tools
Modern sales automation software is a boon for SaaS sales reps. From initiating conversations with inbound leads to following up on communications with prospects further along the sales funnel, these tools can save valuable time for sales representatives.
With the right automation software, your SaaS sales reps can maximize their productivity levels and positively affect conversion rates.
Customer relationship management (CRM) platforms
Since SaaS sales cycles are considerably longer than average, sales teams need an organized way to track every interaction with prospective leads and existing customers. Since SaaS customers tend to expect a level of personalization, it’s crucial to track their details and preferences to meet their expectations consistently.
A customer relationship management (CRM) platform is the ideal tool for managing your leads and customers from one central hub. One of the best uses of a CRM for SaaS sales is tracking leads through the sales funnel and identifying the right opportunities to connect with an offer.
How to assemble a high-performing SaaS sales team
You can spend all the time in the world crafting the perfect SaaS sales strategy, but it won’t have the desired effect unless you hire the right SaaS sales professionals to execute it. The ideal SaaS sales team will have a balance between youth and experience and be able to work in close alignment with other departments, such as marketing, product management, engineering, and customer support.
Here are four things to keep in mind when recruiting SaaS sales representatives for your company:
Choose the right SaaS sales professionals
The most important thing to remember when hiring SaaS sales professionals is that they will be the face of your company for the customers they interact with. You need to hire individuals who uphold your brand image and cast your company in a positive light, no matter the situation. Since SaaS sales reps also work closely with other departments in your company, you need someone who will be a natural fit for its established culture.
When putting together a SaaS sales team, you need a mixture of veterans and newcomers. The number of salespeople on the team depends on your SaaS product and sales model.
Broadly, there are three tiers to the positions within a SaaS sales team:
- Sales development representative (SDR): This is the most junior position in SaaS sales. Candidates for the SDR role usually have up to two years of professional experience. They might require additional training while on the job since SaaS sales demands a certain level of technical expertise.
- Account manager: This is a mid-level position for a SaaS sales executive. They are expected to have between two to five years of professional experience and be capable of reliably converting qualified leads and nurturing long-term customer relationships.
- Sales manager: This is a senior-level SaaS sales position requiring at least five to seven years of prior experience in selling SaaS products. Candidates for this position are expected to have leadership qualities since this is a C-level position that involves overseeing SaaS sales operations for a given market or region.
Create a sales playbook
One of the best ways to get results from your SaaS sales reps is to empower them to customize offers for important leads. However, this practice can easily become counter-productive if the sales reps have no framework for their customizations.
Create clear guidelines for SaaS sales reps and equip them with approved email templates, call scripts, and closing techniques that they can use as they see fit. This will ensure that sales reps don’t make unfulfilled promises that will leave unhappy customers in their wake.
Gather customer feedback
Every customer interaction is a learning opportunity for your SaaS sales team, no matter the outcome. It’s important to hear directly from your customers to understand what appealed to them about your sales pitch. This allows you to focus on the strengths of your SaaS sales strategy and drum up more interest in your product by matching your customers’ expectations.
Set clear parameters to measure performance
It’s important to give your SaaS sales reps clear goals to aim for when they join your sales team. This includes setting fixed, achievable targets for conversions and revenue generation. How quickly or easily a sales rep achieves these targets will give you a framework to evaluate their overall performance and how much value they add to your company.
You can track several key SaaS sales metrics to see how well your sales reps are doing.
Eight essential SaaS sales metrics to track performance
The best way to measure the performance of individual sales reps and your overall SaaS sales operations is by tracking key metrics. These metrics indicate how effective your SaaS sales strategy is proving to be.
Of the many metrics used to measure SaaS sales, here are some of the most important:
1. Customer lifetime value (CLTV)
CLTV measures how much revenue a single customer will generate over the entire course of their association with your SaaS company. To calculate CLTV, you need to multiply a customer’s average purchase value by their average number of purchases over a fixed period.
CLTV is crucial since it shows how much money you earn from retaining customers. It can help you make strategic decisions about whether to focus on retention or pursue new markets.
2. Customer acquisition cost (CAC)
CAC is a metric that highlights how much your company has to spend on sales and marketing to convert a single lead into a customer. To calculate CAC, you divide the total expenditure on sales and marketing by the total number of successful sales.
Your ideal CAC will vary depending on your product and SaaS sales model. For example, enterprise sales models naturally have a higher CAC than transactional sales models. You can also view a CLTV:CAC ratio to see how much profit a single customer will generate over their lifetime, which helps in forecasting revenue earned.
3. Churn
This metric measures how many customers you have lost over a fixed period, such as one month or one year. To calculate the churn rate, you need to divide the number of customers at the end of the period by the number of customers at the beginning of the period.
Of course, there are instances where you can end a period with more customers than you started with, leading to a negative churn rate, which is something every SaaS provider wants to see.
4. Net promoter score (NPS)
NPS is a reliable indicator of how your customers feel about your company. Low scores indicate rising churn rates and growing dissatisfaction, while higher scores mean your customers are content with their services.
Tracking NPS allows you to predict whether your subscription cost will rise or fall over a given period.
5. Monthly recurring revenue (MRR)
This figure outlines how much predictable, repeat revenue your business can expect over the course of a single month. MRR does not include one-time transactions but only recurring transactions that are part of subscription fees.
6. Annual recurring revenue (ARR)
Similar to MRR, ARR measures how much reliable revenue you will generate from SaaS subscriptions over a year.
7. Sales-qualified leads
The number of sales-qualified leads a SaaS sales rep has is a good indicator of how much revenue they can expect to generate in the near future. These leads meet certain criteria that qualify them to buy the SaaS solution, like having the budget to pay fees, the authority to approve a purchase, the need to use the service, and the time to connect with sales reps.
8. Revenue per lead
This demonstrates how much revenue a single SaaS sales rep generates per lead. It helps manage their workloads, as you can calculate the average number of leads a single rep can effectively manage before their productivity starts to decline.
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Conclusion
SaaS sales is a field that is unlike any other form of sales. Developing a successful SaaS sales strategy involves several elements, including:
- Choosing the right SaaS sales model.
- Optimizing the SaaS sales funnel and sales cycle.
- Putting together an effective SaaS sales team.
- Tracking the most essential SaaS sales metrics.
It’s worth putting in the effort to refine your SaaS sales strategy, as it is a reliable way to achieve business growth in a competitive industry!
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