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The Ultimate Guide To SaaS Sales

SaaS Sales

 

SaaS sales—it’s one of the most critical aspects of a SaaS business. It is the key to generating revenue and ensuring the long-term success of your company.

Yet, despite its importance, SaaS sales is often misunderstood. There are a lot of myths and misconceptions out there about what SaaS sales are and how it works.

In this guide, we’re going to set the record straight. We’re going to give you a crash course in SaaS sales.

We will discuss what SaaS sales is, some key terminologies, different sales methods, the stages of a typical sales cycle, different sales team structures, and popular metrics and benchmarks.

By the end of this guide, you’ll have a much better understanding of SaaS sales and how you can use it well to grow your business.

 

What Is SaaS Sales?

 

In its most basic definition, SaaS sales is the process of selling software that is delivered as a service, over the internet.

The SaaS sales process often focuses on building a relationship with a potential customer, not just trying to sell a product.

You see, the SaaS business model relies on long-term relationships with customers who pay a recurring fee to use the software. The fees can be paid monthly, annually or even through multi-year contracts.

So in SaaS sales, the goal is not just to acquire a new customer. But it’s also to keep that customer happy and engaged so they continue to use (and pay for) your SaaS product.

That’s why the early stages of selling SaaS solutions usually involve educating the customer and helping them understand how your product can solve their specific problem.

As you build a strong relationship with them and gain their trust, you can lead them closer and closer to a position where they will see the need to purchase your SaaS solution.

 

Key SaaS Sales Terminologies

 

Both the SaaS industry and the field of sales usually have terms and jargon that can be confusing for those who are new to it.

So let’s define some key SaaS sales terminology and concepts that you’ll need to know in order to understand SaaS sales better:

Sales Reps: Sales representatives are the people who are responsible for generating revenue for a company by selling products or services. In SaaS, sales reps are often responsible for managing the entire sales process from start to finish.

Lead: A lead is a potential customer who has shown some interest in your SaaS product. They may have visited your website multiple times, subscribed to your newsletter, or downloaded a free eBook on your website.

Prospect: A prospect is a lead who has been contacted by a sales rep and is considered to be a good fit for your SaaS solution.

Sales Development Representative (SDR): An SDR is a type of sales representative who focuses on generating leads and setting up appointments with potential customers.

Account Executive (AE): An account executive is a type of sales rep who is responsible for nurturing and closing deals with high-quality leads.

Opportunity: An opportunity happens when a prospect has expressed their interest to buy your SaaS product.

Closed Opportunity: This is when a SaaS sales rep has made an offer to the prospect and the latter has made a decision. It can be a closed-won opportunity or a closed-lost opportunity.

Lead nurturing: This is the process of developing relationships with leads, even if they’re not yet ready to buy your SaaS solution. The goal is to keep them engaged and interested so that they eventually become customers.

Sales pipeline: A sales pipeline is a visual representation of all the deals that a sales rep is working on, from start to finish. It can help sales reps keep track of their progress and forecast future sales.

Demo: A demo is a live demonstration of your SaaS platform, given to a prospect so they can see how it works. It’s common practice for SaaS sales reps to hold live demos with prospects during the sales process.

Objection: An objection is a reason why a prospect may not want to buy your SaaS product. Sales reps need to be prepared to handle objections so they can keep the sales funnel moving forward.

 

SaaS Sales Models

 

One challenge in SaaS sales is that the market can be pretty big and diverse. You can sell SaaS products to consumers. You can sell them to businesses.

And even within those categories, you have even more classifications.

For example, let’s say you’re selling a business-to-business (B2B) SaaS solution. Your B2B SaaS sales strategy for SMBs won’t be the same as selling to bigger enterprises.

So with this variety comes the need to tailor your SaaS sales method according to who your target market is.

Here are some common SaaS sales models you can consider:

 

The Self-Service Model

 

Most SaaS businesses that target consumers or small to medium-sized businesses (SMBs) use a self-service model or a product-led growth model.

With a self-service SaaS sales model, customers can sign up and purchase your SaaS product on their own, without the need for any assistance from a sales rep.

Since you don’t have a sales team to proactively reach out and sell to customers, you need to make sure that your SaaS product is able to sell itself.

This means establishing a solid product-market fit and having a SaaS platform that’s easy enough to use that customers can figure out how to use it on their own.

Plus, it also means making sure that your marketing efforts are able to drive significant awareness and interest in your SaaS product.

And of course, you would have to let potential customers experience the value of your SaaS product for themselves, either through a freemium model or a free trial.

 

The Transactional Sales Model

 

The transactional sales model is most commonly used by SaaS companies selling high-price solutions and targeting bigger businesses.

It’s a more traditional sales model where reps reach out to leads and try to close them as quickly as possible. The focus is on making the sale, rather than building a long-term relationship with the customer.

Now, remember when we mentioned that the goal of SaaS sales is usually to build long-term relationships rather than aggressively selling a product?

The transactional sales model may seem to go against that.

But don’t get me wrong here. I’m not saying that it’s a bad SaaS sales model. It can work well for SaaS companies that are able to close deals quickly and efficiently.

What’s more, transactional sales can really work well with certain outbound marketing strategies, such as account-based marketing.

 

The Enterprise Sales Model

 

The enterprise SaaS sales model is similar to the transactional sales model in that it relies on a sales team to actively reach out to leads and try to close them.

However, the enterprise sales model is geared toward selling high-end solutions to bigger enterprises.

The key difference here is that enterprise SaaS solutions are often customized to meet the specific needs of each customer. What’s more, they usually have a dedicated account management team in addition to their sales reps.

It’s also worth noting that enterprise sales often takes a longer time to close a deal since there’s usually a longer decision-making process involved.

The SaaS Sales Cycle

 

The SaaS sales cycle is the process that sales reps use to take a lead from first contact to closing the deal.

While a SaaS sales strategy can vary from one company to another, it usually has several SaaS sales cycle stages:

 

Prospecting

 

This is the stage where SaaS sales reps and/or your marketing team identify your ideal customers. This involves creating your ideal customer profile (ICP) and buyer personas.

An ICP is a description of your ideal customer in terms of their company size, industry, location, and other firmographic factors.

A buyer persona, on the other hand, is a semi-fictional character that represents certain individuals that you want to target. They help you to understand what motivates your prospects and what challenges they’re facing.

You may have multiple buyer personas within your ICP. For example, you may have one persona for business executives and another for low-level employees.

Creating an ICP and buyer persona is important because it helps you to personalize your messaging in a way that would be relevant to the lead you are talking to.

 

Lead Generation

 

Lead generation is the process of attracting and converting strangers into leads. Once you have your ICP and buyer personas, you need to start generating leads that fit those criteria.

There are a number of ways to generate SaaS leads, such as:

 

Lead Qualification

 

When you generate leads, not all of them will be likely to buy your product. In fact, most of them probably won’t be ready to buy.

That’s why it’s important to qualify your leads before you start selling to them. And the best criterion for lead qualification is their behavior.

You can classify your qualified leads into three levels:

  • Marketing qualified leads (MQLs): MQLs are leads that have shown an interest in your product through certain interactions with your marketing materials. They may have visited your website, subscribed to your newsletter, or downloaded a piece of content.
  • Sales qualified leads (SQLs): SQLs are leads that have already reached out to your sales team or at least given their contact information so that a sales rep can talk to them.
  • Product qualified leads (PQLs): PQLs are leads that have used your SaaS product through a free trial or a freemium model. They may also have gone through various steps in the onboarding process.

Qualifying your leads is important because it allows you to focus your selling efforts on those that are most likely to buy.

It also allows you to score your leads so that you can prioritize them according to their likelihood of buying.

 

Product Presentation

 

Once you have qualified your leads, it’s time to start selling to them. This usually involves giving them a product presentation or demo.

A product presentation is simply a way of showing your SaaS product to a prospect in order to highlight its features and benefits.

It’s usually done through a PowerPoint deck or via a video conferencing platform with a screen-sharing tool, like Zoom.

A product demo, on the other hand, is a more interactive way of showing your SaaS product.

In a demo, you would actually use the software in front of the prospect so that they can see how it actually works.

Product presentations and demos are important because they allow you to show your SaaS solution in its best light. They also give you an opportunity to answer any questions that the prospect may have.

 

Handling Objections

 

Even if you have highly qualified leads and prospects, there’s always a chance that they will have objections to your SaaS product.

It could be that they don’t see the need for it, or maybe they’re worried about the price. Whatever the objection may be, you need to be prepared to handle it.

The best way to do this is to have a list of objection-handling scenarios that you can use when needed. 

Here are a few examples:

  • “I don’t see the need for this”: If you get this objection, you can ask them what their current process is and what pain points they’re experiencing. Then, show them how your SaaS product can help to solve those pain points.
  • “I’m worried about the price”: Talk about the value that your SaaS solution brings and how it will save them money in the long run. You could also offer them something like a 30-day money-back guarantee that would make them more confident about buying.
  • “I’m not sure if it will work for my business”: Share some case studies or customer success stories of businesses similar to theirs that have had success with your SaaS solution.
  • “I have a subscription with another provider”: Find out what they like about their current solution and what they don’t like. Then, show them how your SaaS product is better in those areas.

Whatever the objection is, it’s important for your SaaS sales rep to listen to your prospect’s concern.

Aggressively pushing a sale is usually a turn-off for prospects and will only make them more resistant to your SaaS product.

Instead, they should try to see where the prospect is coming from by asking questions. And when they have identified the real cause of the objection, they can provide a calm and convincing response that addresses it.

 

Closing

 

Once you’ve overcome the prospect’s objections, it’s time to close the deal. This usually involves getting them to sign a contract and/or facilitate their payment transaction.

This stage also involves customer onboarding. Once the deal is closed, you need to make sure that the customer knows how to use your SaaS product and that they’re getting the most out of it.

The best way to do this is to have a customer success team that can help them with any questions or problems they might have.

 

Customer Retention

 

Once a customer is onboarded and using your SaaS product, it’s important to focus on retention. This means making sure that they’re happy with your SaaS product and that they continue to use it.

Although the bulk of customer retention falls on your customer support and customer success teams, sales reps can also play a big role in it.

For example, they could check in with customers from time to time to see how they’re getting on and if there’s anything they need help with.

They could also be the ones upselling your existing customers when the time is right.

What’s more, your sales reps can also promote referral programs to customers that would encourage them to spread the word about your SaaS product.

And when they refer a new customer for your SaaS business, the SaaS sales cycle goes full circle and your sales reps can work with a whole new batch of high-quality leads.

SaaS Sales Team Structures

 

Different SaaS sales models and cycles require different team structures.

There’s no one-size-fits-all solution here and the best way to figure out what works for your SaaS company is to get down to the principle and pick whatever SaaS sales team structure best fits your sales strategy.

With that said, here are a few common sales team structure models that you might want to consider:

 

The Island Model

 

The island model is a sales team structure where each sales rep is responsible for their own leads and they don’t share them with anyone else.

Each SaaS salesperson has to have the necessary skills and experience to work with leads from the start of the sales cycle to the end.

 

SaaS Sales team structure - The island model

[**Each sales rep is in charge of prospecting, lead generation and qualification, closing deals, and customer success**]

 

The main advantage of this team structure is that it can be very efficient. Sales reps are able to work on their own without having to coordinate with anyone else.

This structure also allows sales reps to build strong relationships with their leads since they’re the only ones dealing with them.

That’s why this model works best for small SaaS businesses with a small number of sales reps. And it’s often used by SaaS startups because it’s simple to set up and manage.

However, the main downside of this model is that it doesn’t scale well.

As your SaaS company grows and you add more sales reps, it becomes more difficult to keep track of who’s working on which leads.

And if a sales rep leaves the company, all their leads will likely go with them.

 

The Assembly Line Model

 

The assembly line model is a sales team structure where leads are handed off from one sales rep to another as they move through the sales process.

So, you would have roles like the following:

  • Prospectors
  • Lead generators
  • Lead qualifiers
  • Closers
  • Customer success managers

 

Assembly Line Model

[**Assembly line with the following succeeding stages: prospectors, lead generators, lead qualifiers, closers, and customer success team**]

 

The main advantage of this sales team structure is that it allows each sales rep to focus on their own area of expertise.

For example, the lead generator can focus on generating high-quality leads and the closer can focus on closing deals.

This team structure also makes it easier to manage a large sales team since you can simply assign each rep to the role they can do best.

And if a sales rep leaves the company, their leads can be easily redistributed to someone else on the team.

The main downside of this team structure is that leads would have to interact with multiple sales reps. And it can be hard to build a relationship with them if they’re constantly being handed off to someone new.

 

The Pod Model

 

The pod model is a sales team structure where groups of sales reps (pods) work together on leads.

Each pod would be responsible for its own set of leads and they would work together to move them through the sales cycle.

Pods can be generalists or specialists.

For example, you could have a pod of SaaS sales reps that only focus on enterprise deals or a pod of SaaS sales reps that focus on medium-sized businesses.

 

Pod Model

[**Multiple small sales teams, each consisting of prospectors, lead generators and qualifiers, closers, and customer success managers**]

 

The main advantage of this team structure is that it allows for more collaboration between sales reps. Since they’re working in groups, they can help each other out and learn from each other.

This SaaS sales team structure can also boost your results by fostering healthy competition between the teams. You can do this through sales gamification or by displaying leaderboards that feature the best-performing groups.

However, the main downside of this SaaS sales team structure is that it can be difficult to manage.

And since you have multiple groups of sales reps, it’s important to make sure that they’re all working towards the same goal. Otherwise, you might end up with sales reps working against each other instead of together.

 

SaaS Sales KPIs & Benchmarks

 

As you can see, SaaS sales can be a complex beast. And chances are that you won’t get it perfectly on your first rodeo.

That’s why it’s important to keep on adjusting and improving your SaaS sales process. And you need to do that with data-driven decisions on what to change.

That’s why you need to track the right SaaS sales KPIs. And more than that, you need to constantly compare how your performance stacks with the SaaS sales benchmarks in your industry.

Only then can you be sure that you’re on the right track.

Here are some SaaS sales KPIs and benchmarks that you should track:

 

Lead Velocity Rate (LVR)

 

The lead velocity rate is the growth in the number of qualified leads you generate month-on-month. These qualified leads include MQLs, PQLs, and SQLs.

To calculate your LVR, you need to take the number of qualified leads you generated in a certain month and divide it by the number of qualified leads you had at the beginning of that month.

 

LVR Formula

 

A high LVR indicates that your marketing and lead generation efforts are performing well. And it may result in rapid growth if you successfully nurture and convert those leads.

Now, there is really no standard LVR for all SaaS businesses. It can vary depending on your industry, target market, and lead generation channels.

So, you need to compare your LVR with SaaS companies in a similar situation as yours. Only then can you tell if you’re on track or not.

What’s more important though, is how well you are qualifying new leads into MQLs and MQLs into SQLs.

So let’s talk about that next.

 

Conversion Rate

 

The conversion rate is the percentage of potential customers in a certain sales cycle stage that take the desired action that takes them to the next stage.

For example, let’s say you currently have 100 leads receiving your email blasts. Imagine these emails mainly having calls-to-action (CTAs) that encourage recipients to request a demo with your sales team.

In this case, you’re probably tracking your MQL-to-SQL conversion rate. Now, imagine that 30 of those MQLs click on the CTA and actually talk to a sales rep. That means you have an MQL-to-SQL conversion rate of 30%.

You can also track other conversion rates for other types of progressions with your leads and prospects.

Again, benchmarks for different conversion rates will vary depending on your industry and target audience size.

SaaS businesses targeting SMBs are likely to have higher conversion rates than SaaS companies targeting enterprises.

That’s because, in general, it’s easier to sell to SMBs. They have less complex buying processes and they’re more likely to be open to trying new things

Here’s an overview of different conversion rate benchmarks you may want to track:

  • Visitor to lead: 0.7%-2.3%
  • Lead to MQL: 34%-41%
  • MQL to SQL: 32%-40%
  • SQL to Opportunity: 36%-46%
  • Opportunity to Closed-won: 36%-46%

 

Annual Contract Value (ACV)

 

Your ACV is the annualized revenue you can expect from a customer. To calculate it, simply divide your total contract value (TCV) by your contract period.

 

ACV Formula

 

This metric enables you to compare SaaS deals of different sizes and durations. It will, in turn, help you identify which customers bring in more revenue to your business.

Benchmarks for the ACV can depend on whether you are selling a B2B solution or a B2C product:

  • ACV benchmark for B2B: $1,080
  • ACV benchmark for B2C: $100

 

Sales Cycle Length

 

The sales cycle length is the number of days that it takes to close a deal.

This metric is important because it tells you how long it’s taking you to turn leads into paying customers. The shorter your sales cycle, the better.

There are a few factors that can affect your sales cycle length:

The complexity of your SaaS product: Of course, some SaaS products are more complex than others. And that means that they’ll have longer sales cycles. There’s nothing wrong with that as long as it doesn’t keep your sales reps from pursuing higher-quality leads.

Number of decision-makers: It’s also important to note that different SaaS businesses will have different types of buyers. Some SaaS products are bought by individuals while others are bought by committees.

In general, SaaS products that are bought by committees will have longer sales cycles. That’s because there are more decision-makers involved and it takes longer to get everyone on the same page.

Pricing: SaaS products with higher price tags will also have longer sales cycles. That’s because buyers will want to take their time to make sure they’re getting their money’s worth.

Now, the average SaaS sales cycle length across the board is around 84 days.

However, remember that the SaaS industry is very diverse and the standards can vary according to the factors we’ve just mentioned above, especially the pricing.

That’s why the standards for sales cycle length will vary mainly on the ACV of the deal you’re trying to close.

Here are some SaaS sales cycle length benchmarks you may want to look at:

  • Deals with ACV of $5,000 or below: 40 days
  • Deals with ACV of $100,000 and above: 170 days

 

Monthly Recurring Revenue (MRR)

 

What can be a more direct measure of your sales performance than the actual recurring revenue you are generating?

The monthly recurring revenue (MRR) is the SaaS metric that tells you how much money you can expect to receive from your customers on a monthly basis.

To find it simply take your total monthly revenue from all of your customers. If you have annual subscriptions or multi-year contracts, you will need to break them down into their equivalents in monthly payments.

 

Annual Recurring Revenue (ARR)

 

The annual recurring revenue (ARR) is the annual version of your MRR. It’s the total revenue you can expect to receive from your customers within a year.

To calculate it, you simply need to take your total yearly revenue from all of your customers. For multi-year contracts, you’ll need to take their ACVs first before you can add them to your ARR.

 

ARR Growth Rate

 

There’s really not much of a benchmark on both ARR and MRR. However, what you can compare with other SaaS businesses is your recurring revenue growth rate.

You can calculate your ARR growth rate, which is the percentage change in your ARR from one period to another. This SaaS metric will give you an idea of how well your SaaS business is performing when it comes to sales.

 

ARR Growth Rate Formula

 

The ideal growth rate for a SaaS company depends on its stage of development. According to the T2D3 framework, a SaaS startup should grow by 300% every year for its first two years and then 200% per year for the next three.

However, the average ARR growth rate for other SaaS businesses can range from 15% to 45%.

 

Churn Rate

 

The churn rate is the percentage of customers who stop using your SaaS product within a given period.

While churn is mostly affected by your product quality, customer support, and customer success, it may also say something about the effectiveness of your lead qualification processes.

That may be the case, specifically if the reason for the customer leaving is a mismatch between their needs and what your SaaS product can offer.

To calculate your churn rate, simply divide the number of customers who cancel their subscription in a given period by the total number of customers you have at the beginning of that period

Churn rate standards can vary widely depending on your target market, industry, and company size. However, the widely accepted churn rate benchmark ranges from 5%-7%.

 

Customer Churn Rate Formula

 

Customer Acquisition Cost (CAC)

 

The customer acquisition cost (CAC) is the amount of money you spend to acquire a new paying customer.

To calculate your CAC, simply divide your total sales and marketing expenses by the number of new customers you’ve acquired in a given period.

 

CAC formula

 

Your CAC will go up as you spend more money on sales and marketing. And it will go down as you acquire more customers.

Now, you can’t really put a standard on how much money you should spend on your customer acquisition efforts. After all, it will depend on your SaaS sales models and marketing strategy.

What’s more important is knowing how much revenue you are generating as a result of your CAC. We’ll talk more about that later.

 

Customer Lifetime Value (CLV)

 

The customer lifetime value (CLV) is the total revenue that you can expect to generate from a single customer over the course of their relationship with your SaaS business.

Finding your CLV involves two other metrics: your average revenue per user (ARPU) and average customer lifetime.

The ARPU is the average amount of revenue that you generate from each paying customer. You can calculate it by dividing your total revenue by the number of paying customers you have in a given period.

As its name suggests, the average customer lifetime is the number of months or years that a customer remains a paying customer, on average.

And to calculate your CLV, simply multiply your ARPU by your average customer lifetime value.

 

CLV Formula

 

If you don’t have existing data on your average customer lifetime, you can estimate it with the inverse of your churn rate.

So in that case, calculating your CLV would involve dividing your ARPU by your customer churn rate.

 

CLV Formula

 

Like CAC, there isn’t really a single standard for how much total revenue you should aim to make from each customer.

The more, the better. That much is sure. But it’s more important to see how it stacks against your CAC.

And that brings us to our next metric.

 

CLV/CAC Ratio

 

The CLV/CAC ratio is the ratio of your customer lifetime value to your customer acquisition cost.

In other words, it’s a measure of how much total revenue you can generate from a single customer, compared to the amount of money you spend to acquire that customer.

To calculate your CLV/CAC ratio, simply divide your CLV by your CAC.

A good rule of thumb is to aim for a CLV/CAC ratio of 3:1 to 5:1.

That means for every $1 you spend on acquiring a new customer, you can expect to generate $3 in revenue from that customer over the course of their relationship with your business.

 

Final Thoughts About SaaS Sales

 

There is a lot that goes into selling SaaS products. But if there’s one thing to keep in mind, it’s that SaaS sales is all about building relationships.

Strong customer relationships are the key to sustainable SaaS sales growth and maximizing your CLV.

The best way to do that is by providing value. Whether it’s through a free tour of your product, content marketing, or your customer service, make sure that you’re always delivering value to your customers.

All others will depend on your business and what type of customers you are aiming for. Your sales model, your sales team structure, the metrics you’re going to track—they all have to be aligned with your business goals.

Looking for more guides that can help you grow a successful SaaS business? Check out our blog here.

 

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Ken Moo
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