SaaS Conversion Rate Benchmark and Optimization Tips
Are you happy with your SaaS conversion rate? If not, you’re like most businesses. A lot of SaaS companies know the importance of having a high conversion rate, but very few are prepared to put in the hard work necessary to achieve it.
Apparently, the most successful companies save at least 5% of their budget each year to improve their website’s conversion rate. These companies are willing to do whatever it takes to get their visitors to take action, whether that means buying a product, signing up for a newsletter, or filling out a form.
In this blog post, we’ll discuss what constitutes a ‘good’ conversion rate and offer optimization tips to help you improve your overall conversion rate. Read on to learn more!
What Is a SaaS Conversion Rate?
SaaS conversion rate is a metric that measures the percentage of people who sign up for a free trial of a SaaS product and then become paying customers. SaaS businesses typically use this metric to track and improve their sales funnel performance.
SaaS businesses typically have high conversion rates because they offer a valuable product that people are willing to pay for. However, SaaS businesses can also have low conversion rates if they do not offer a good value proposition or if their free trials are too short.
SaaS conversion rates can vary widely, depending on a number of factors including:
- The type of SaaS product: Some SaaS products are more complex than others and require a longer free trial period in order to be properly evaluated.
- The pricing model: SaaS businesses that use a subscription pricing model tend to have higher conversion rates than those that use a one-time pricing model. Data show that businesses with subscription pricing model are over 200% more profitable than one-time payment model. This is because subscription pricing models offer a lower barrier to entry and allow customers to commit to a lower monthly payment
- The target market: SaaS businesses that target enterprise customers tend to have lower conversion rates than those that target small businesses or consumers. This is because enterprise customers are typically more risk-averse and require a longer free trial period.
What Is a “Good” SaaS Conversion Rate?
While there is no one-size-fits-all answer to what constitutes a “good” SaaS conversion rate, industry experts generally agree that a rate of 3-5% is healthy, while 8% or higher is considered strong.
Of course, conversion rates will vary depending on factors like the nature of the product and the target market as explained earlier. However, SaaS companies should always be striving to improve their conversion rates and achieve certain benchmarks in order to maximize revenue and grow their business.
SaaS Conversion Rate Benchmarks
SaaS businesses have a variety of conversion rate benchmarks that they can use to measure performance.
For example, the 2021 Conversion Benchmark Report from Unbounce found that the median conversion rate of SaaS businesses in 2020 is 3%. This means that for every 100 visitors to a SaaS website, 3 people convert into paying customers.
Of course, conversion rates will vary depending on the type of SaaS business, business models as well as factors such as website traffic and customer acquisition costs.
However, this benchmark provides a useful starting point for measuring SaaS conversion rates. SaaS Businesses can use this benchmark to set goals and track progress over time.
Low-touch business models
SaaS businesses have a wide range of conversion rates, depending on their business model.
Low-touch SaaS businesses, which require less personal interaction with customers, have some of the highest conversion rates.
These businesses typically have high customer lifetime values and low customer churn rates.
As a result, they can afford to invest in acquiring new customers. They also tend to have strong branding and a well-defined target market. All of these factors contribute to high conversion rates.
SaaS businesses with low-touch models typically convert at rates of 1-2%, although some may convert at higher rates.
Solutions requiring a credit card for free trial signup generate up to a 60% conversion rate. These businesses are typically subscription-based, with monthly or annual plans. The monthly recurring revenue (MRR) can be a good metric to track for these businesses.
High-touch business models
SaaS businesses with high-touch models, which require more personal interaction with customers, have lower conversion rates.
This is due to the fact that they typically have longer sales cycles and higher customer acquisition costs. As a result, they are not able to convert as many leads into paying customers.
SaaS businesses with high-touch models typically convert at rates of 0.03%- 0.05%. These businesses are typically transaction-based, with one-time or periodic payments. The number of transactions can be a good metric to track for these businesses.
Hybrid business models
SaaS businesses with hybrid models, which combine elements of both low-touch and high-touch models, have conversion rates that fall somewhere in between. These businesses typically have a mix of subscription-based and transaction-based pricing.
SaaS businesses with hybrid models typically convert at rates of 10%. These businesses typically have a mix of monthly and annual plans, as well as one-time or periodic payments. The total revenue can be a good metric to track for these businesses.
SaaS Conversion Rate-Limiting Factors
There are a number of factors that can limit SaaS conversion rates or make it difficult to convert leads into paying customers. Here are some of the most common:
- The product is not a good fit for the target market: The product must meet the needs of the target market and address their pain points. To do this, businesses need to have a good understanding of their target market and what they are looking for.
- The product is not priced correctly: The price must be in line with the perceived value of the product. If the price is too high, potential customers will be turned off. If the price is too low, potential customers will question the quality of the product.
- The website is not user-friendly: The website must be easy to navigate and provide a good user experience. If potential customers cannot find what they are looking for or have difficulty using the website, they will be less likely to convert.
- The sales process is too long or too short: The sales process should be just long enough to give potential customers the information they need to make a decision. If the process is too long, potential customers will get impatient and go elsewhere. If the process is too short, potential customers will not have enough time to make a decision.
- There is too much or too little customer interaction: The amount of customer interaction should be just right. If there is too much interaction, potential customers will feel pressured and will not convert. If there is too little interaction, potential customers will not have enough information to make a decision.
- The product is not differentiated: The product must offer something that is unique and valuable to the customer. To do this, businesses need to understand their competition and what they are offering.
SaaS Conversion Rate Optimization Tips
Below are a few tips on how SaaS businesses can optimize their conversion rates:
1. Keep your pricing in check
Make sure your pricing is in line with what your target market is willing to pay. If your prices are too high, you’ll likely see a low conversion rate as potential customers will be turned off by the cost. However, if your prices are too low, you may not be making enough profit to sustain your business. It’s important to find a happy medium that allows you to make a profit while still providing value to your customers.
2. Offer a free trial
Offering a free trial of your product or service allows potential customers to try out your offering before they commit to paying for it, which can help increase the likelihood that they’ll convert into paying customers. Based on research by Recurly across 1,200 subscription sites, two out of every three B2B free trials convert into paid subscriptions. Just be sure to set up some sort of system that will remind users to upgrade to a paid subscription once their free trial period is over, or you risk losing them as customers altogether.
3. Simplify your sign-up process
If your sign-up process is long and complicated, you’re likely to lose people along the way who simply give up out of frustration. On the other hand, if you have a simple and straightforward sign-up process, more people are likely to complete it and become paying customers.
Social proof is the idea that people are more likely to convert into customers if they see that others have already done so. This could take the form of testimonials from existing customers, reviews from third-party sources, or even celebrity endorsements. If potential customers see that others have had success with your product or service, they’ll be more likely to take the plunge themselves.
5. Create a Landing Page
Your landing page should be clear, concise, and easy to navigate. It should also contain a strong call-to-action that encourages visitors to take the next step.
4. Use Effective Calls-to-Action
Your calls-to-action should be clear, concise, and effective. They should also be placed in strategic locations on your website so that visitors can see them and be encouraged to take action.
5. Test, Test, Test!
The only way to know if your conversion rate optimization efforts are working is to test, test, test. Try different tactics and see what works best for your business. Then, continue to test and refine your tactics until you achieve the results you desire.
Other Metrics to Consider
While conversion rate is an important metric to track, it’s not the only one you should be paying attention to. Other important metrics to consider include:
1. Customer Churn
Customer churn is the percentage of customers that cancel their subscription or stop using your product within a given time period. While a high customer churn rate can be indicative of a number of problems, it is important to track this metric in order to identify potential issues and take steps to address them.
2. Customer Lifetime Value (CLV)
CLV is a measure of the average revenue that a customer will generate over the course of their relationship with your company. A high CLV indicates that customers are sticking around and using your product on a regular basis, while a low CLV indicates that customers are canceling their subscriptions or not using your product as much as they could be.
3. Net Promoter Score (NPS)
NPS is a measure of how likely customers are to recommend your product to others. A high NPS indicates that customers are happy with your product and would recommend it to others, while a low NPS indicates that customers are unhappy with your product and would not recommend it to others.
4. Customer Acquisition Cost (CAC)
CAC is the amount of money that you spend in order to acquire new customers. A high CAC indicates that it is expensive to acquire new customers, while a low CAC indicates that it is relatively inexpensive to acquire new customers.
5. Monthly Recurring Revenue (MRR)
MRR is the amount of money that you receive each month from customers who have subscribed to your service. A high MRR indicates that you have a large number of paying customers, while a low MRR indicates that you have fewer paying customers.
It’s not enough to just have a “good” conversion rate. You need to optimize every aspect of your user funnel in order to decrease customer churn and increase revenue. The good news is that there are many effective optimization techniques you can use to improve your SaaS business. In this blog post, we shared some of the most important conversion rate optimization tips for SaaS startups.
For more helpful tips on growing your SaaS startup, be sure to visit our blog.