There were times when software was a product, something you installed on your computer locally after purchasing a license – a one-time purchase and lifetime use, like Microsoft Office, Oracle, etc.
As the technological world evolved, software became an important aspect, so much so that it had to be flexible and scalable, which led to the development of SaaS: Software as a Service.
SaaS offers more agility and scalability regardless of your business size. Despite this, it was hard to sell SaaS perpetually since there was no hard product value associated with it. So, there came a need to derive sales methodologies for selling software as a service.
In this article, we'll introduce you to SaaS sales, what it is, how it works, its types, key metrics, and the best practices.
What is SaaS Sales?
SaaS sales is the process of selling cloud-based software through a subscription model.
Unlike traditional software sales, which were one-time affairs with fairly simple sales funnels, modern SaaS sales require a more recurring effort on one buyer.
Did you know that the SaaS industry will be worth ~$318 billion by the end of 2024?
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Traditional software sales had short, rigid sales cycles involving – Awareness, Discovery, Evaluation, Intent, and Purchase. A prospect would pass through the sales cadence once in the software lifecycle, get a perpetual incense, and never look back.
Since the traditional funnel ends as soon as you make a deal or purchase, there is no purpose in retargeting a converted customer or expecting recurring business.
This scenario changed with subscription-based SaaS pricing models.
Product teams now focus on making the product indispensable while the SaaS sales teams sell this indispensability, an inherent need.
Is SaaS Sales More Rewarding than Traditional Software Sales?
Short answer: Yes
Long answer: 👇
Subscription-based SaaS sales models are major cost savers for customers who can't afford hefty license fees, allowing them to pay as they go monthly or annually.
It's more like renting software rather than purchasing it.
As a SaaS owner, selling your software on a subscription-based model allows for:
- Easy Scalability: As and when the need arises, businesses are free to upgrade or downgrade their feature requirements and usage anytime they deem necessary, leading to more efficient operations, which boosts customer trust and product reliability.
- Cloud-First Environment: Unlike traditional software, SaaS is easy to maintain, fix, or upgrade over the cloud without disrupting customer business. Businesses don't have to worry about system bugs, feature breakages, or security updates.
- Value Pricing: Most SaaS products have dedicated features made for different customer segments, defying the one-size-fits-all theory. A smaller business may operate on the lowest price plan, while an enterprise could choose exhaustive and expensive plans to absorb it all.
How Does SaaS Sales Work?
SaaS sales emphasize long-term customer relationships and recurring revenue to distinguish itself from traditional software sales.
Here's what the typical SaaS sales funnel looks like 👇
Lead Generation (Awareness Stage)
Awareness generally results from marketing campaigns run for the product. Here, the prospect has learned about your product and is interested in engaging with and exploring your offerings.
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Personalized Reach Out (Engagement Stage)
This stage is necessary for subscription-based or enterprise pricing models (more on this below). Here, you engage with the leads via digital channels of your choice: an email, a phone call, or a targeted ad.
This stage is beneficial to push new buyers down your sales funnel and requires you to:
- Position your product for a use case for their business
- Build trust by showcasing genuine testimonials
- Engage more on digital and social channels
- Be accommodative towards pricing and plans
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Customer Onboarding
The stage wherein you Acquire the prospect and onboard them to your product, introduce them to the functionalities and training material they might need.
Accompany this process with a dedicated POC to help them feel secure and attended. On top of that, you can:
- Offer a consulting or Q&A session to engage
- Allow them a free trial or demo of your product
- Present the value your product offers via customer success stories
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Customer Retention
SaaS sales focuses on maintaining long-term relationships with customers. This, in return, helps you build a recurring business.
You can achieve this by incorporating customer success strategies. Provide ongoing support, regular updates, dedicated account representatives, and engage with customers to ensure they derive maximum value from the product.
What are the Cycles of a SaaS Sales Process?
A typical SaaS sales cycle has six key stages. Here's a quick breakdown:
Phase 1: Prospecting
This involves identifying potential leads that align with your ideal customer profile (ICP) to effectively target the right market segments. Techniques such as content marketing, social media outreach, and referrals are commonly used to generate interest and attract prospects.
Phase 2. Lead Qualification
The leads generated from prospecting consist of both qualified and unqualified buyers. That is buyers who are just curious about your software and those who are genuinely interested in purchasing it.
Moving a lead through the qualification process is more like two-factor authentication. It ensures that your sales team is presented with qualified leads with the highest likelihood of conversion, thereby reducing sales cycles and customer acquisition costs.
Phase 3. Need Analysis
This stage is about building trust and rapport with your prospect. You establish interactions with them, understand their needs, and value their expectations of your software.
This stage looks different for every company since SaaS sales cycles can vary wildly depending on the type of product on offer.
Phase 4. Proposal
After understanding the prospects' needs, sales teams present a tailored proposal that outlines how the software can address those needs effectively. You demonstrate product features, pricing options, and potential ROI.
However, this is the stage with most objections.
Prospects might counter your proposal with common objections, such as high pricing, fear of commitment, competitor offers, and more.
The key to winning your proposal is being an active listener. Hear out your prospects and counter them with something better.
For example, if they say:
- Expensive pricing: Show them your product value
- Fear long-term commitment: Offer a free trial or 30-day money-back guarantee
- Not the sole decision maker: Ask for a conference set up with all key stakeholders.
Do all, and make sure your proposal makes an impact.
Phase 5. Closure
The hours before signing a deal are filled with anxiety and doubts. You still need to get them onboarded, retained, and set up the eventual upsell.
If your prospects are on the verge of their free trial or product demo, then you could try a few things to make them commit to a subscription, such as:
- Offer a likable discount that doesn't cut into your profits
- Create urgency by adding a 'Valid till today' tag
- Give them one or two months for free if they decide to bill annually
Additionally, proactively approach them for any last-minute questions, concerns, or objections they have; this might be the pivotal point in decision-making.
Phase 6. Onboarding
Once you've closed the deal, you'll need to get the user through onboarding.
According to Zendesk, more than half of the customers who buy online would switch to a competitor after just a single bad experience.
This way, you have better chances of cross-selling and up-selling co-products and add-ons.
The ball is in your court. But how can we improve customer onboarding exactly?
As such, investing in self-service support systems always proves beneficial.
- Automate onboarding flows like welcome emails and getting-started guides
- In-app guidance and documentation
- Help guides and troubleshooting content
Do all, and ensure that fresh signups don't huddle any obstacles.
What is the Best Structure for Building a SaaS Team?
At its core, a professional trying to sell software as a service requires unique skills, like product knowledge, consultative selling (soft selling rather than hard selling), and technical know-how.
However, your SaaS team structure highly depends on your business size and the human resources you can employ.
For early-stage companies with 1 to 20 employees, a lean structure is essential. Typically, this includes:
- Founder (CEO): Drives vision and strategy.
- CTO: Manages technology and product development.
- CSO (Chief Sales Officer): Responsible for sales strategy and execution.
- CMO (Chief Marketing Officer): Handles marketing efforts to generate leads.
As the company grows, roles can become more specialized, adding positions like customer success managers and dedicated sales representatives.
In later-stage companies with 50+ Employees, the team structure becomes more complex:
- C-Suite Executives: Including CFO, COO, and CPO to oversee various departments.
- Sales Team: Comprising account executives, sales development representatives (SDRs), and customer success managers.
- Marketing Team: Product marketers, content marketers, and demand generation specialists.
- Product Team: Featuring product managers, UX/UI designers, and QA engineers.
This structure allows for clear role definitions and accountability across departments.
What are the Key SaaS Sales Models?
Choosing the right SaaS sales model can make or break your business.
Essentially, you can choose from three types of SaaS sales models:
- Self-service.
- Transactional.
- Enterprise sales.
Let's have a closer look at them.
The Self-Service Sales Model
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This model works best for low-cost, high-volume products.
Instead of having dedicated sales executives, this model relies on marketing to generate revenue. That is, creating product awareness via educational content, blogs, white papers, and interactive demos and allowing potential customers to complete a purchase autonomously without ever interacting with a sales rep.
This is common for lower-cost B2C or B2B products that don't necessarily require much customization beyond offering tiered pricing models that make it easy to land and expand the customer base.
However, this requires that your customers be willing and able to service themselves, able to understand the product value, and curious to use it.
Freemium pricing models and free trials are common pricing strategies to attract customers. Some SaaS businesses using this model are Zoho and Dropbox.
Transactional Sales Model
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This model works best when you have a high-cost SaaS product.
Let me get this straight.
The most human thing is to hesitate at least once when taking a risk, maybe with your decision or money. And when that happens, the urge to interact with a human behind the desk is surreal.
The transactional sales model combines elements of both self-service and enterprise sales models.
It works on a hybrid model with an in-house sales team assisted by marketing content to build awareness and convert potential clients into customers.
In this model, marketing plays a crucial role in nurturing and feeding qualified leads into the sales pipelines. Then, sales and support executives take up a more personalized sales approach through various channels, including phone calls and emails, to convert sales.
This way, the entire revenue generated is split between the sales and marketing departments while also testing out the synergy between teams.
The sales cycle in this model tends to be shorter than in enterprise sales but longer than in self-service models. It involves multiple touchpoints with potential customers to build trust and address concerns.
Usage-based pricing or a Pay-as-you-go pricing model is a great fit for a Transactional Sales Model in which customers are charged per transaction or usage event.
Enterprise Sales Model
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The model is reserved for big-ticket clients (enterprises) who require extensive customizations and support before becoming your customers.
Enterprise companies often require sophisticated solutions that integrate seamlessly into their existing tech stack.
That said, these organizations are willing to invest heavily in your product. Since the deal size is big, the sales cycle for enterprise SaaS can extend from several months to over a year due to the product complexity and the need for thorough evaluations by various decision-makers within the organization.
Besides, this model requires a dedicated sales operation to identify, nurture, and build new business relationships, as well as close and support customers on hefty annual contracts.
What are the Challenges in SaaS Sales?
Closing a SaaS sale isn't always rewarding. Like every other product sale in the market, it has its challenges and limitations. Let's look at some common challenges in SaaS sales and how to overcome them.
1. High Chun Rates
Did you know that the yearly churn rate of a SaaS company targeting SMBs can be as high as 58%?
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Churn is one of the biggest challenges for SaaS companies. These days, customer churn happens because it's extremely easy to opt for a new product, especially with a dedicated migration team to move all your data.
Customers may leave due to dissatisfaction with the product, lack of engagement, or better offers from competitors. High churn rates severely impact revenue.
How do you overcome high churn rates?
To reduce churn rates:
- Invest in customer relationship management techniques.
- Lead out customer success initiatives that focus on smooth onboarding, ongoing support, and engagement strategies.
- Showcase proactiveness with regular check-ins and provide excellent customer service to ensure customers derive maximum value from the product and stay loyal in the long run.
2. Lower Customer Retention
SaaS sales are not a one-off process; they are recurring ones instead. After a newly acquired customer exhausts the free trial or subscription plan, the sales cycle starts from net zero.
Yet again, you need to convince them to buy in, run follow-up campaigns, or engage directly via email or call. Although time-consuming, retaining existing customers is 5 times less expensive than acquiring new customers.
In fact, your business can grow by retaining your customers because you are more likely to upsell annual contracts, new features, upgrades, and new products.
For example:
James has just exhausted his monthly subscription to your software. He's now looking for a certain feature that your competitor is offering, but you're not. An ideal customer retention strategy, in this case, would involve offering James an upgraded plan with this feature coupled with a generous discount for being a loyal customer.
How to improve customer retention?
Prospects frequently raise objections related to cost, integration, and software effectiveness. Proactively addressing these concerns will help maintain momentum in the sales process.
Understanding customer retention in the SaaS realm is paramount. Regularly analyze usage patterns, feedback, and engagement levels to refine offerings and enhance retention strategies. In essence, quantifying retention provides actionable insights to bolster long-term client relationships and product sustainability. - Ajit Pathak, VP Sales
3. Lengthy Sales Cycles
Several variables, such as software cost, customer intent, and product complexity, determine the length of the SaaS sales cycle.
The average sales cycle lasts 84 days. For an Annual Contract Value (ACV) of less than $5K, the cycle will last around 40 days. If the ACV is over $100K, the cycle will last 170 days—around five and a half months.
In the enterprise world, with a bad lead, these could amount to a serious expense!
How do you bail out from long sales cycles?
Sales reps don't have much control over the sales cycle length. But if you're a SaaS business owner, you can take some steps to shorten it.
- Consider cutting down on a 30-day free trial to 14 days.
- Promote a hybrid sales approach, giving prospects access to self-help resources and educational content.
What are the Key SaaS Sales Metrics to Track?
Overall, five key SaaS sales metrics are commonly used to gauge SaaS sales performance and growth:
1. Customer Lifetime Value (CLTV)
Customer lifetime value (CLV) is the total revenue or profit generated by a customer over the entire course of their relationship with your business.
By measuring CLTV time-to-time, SaaS businesses can:
- Keep churn rate low and increase revenue per customer over time.
- Build cross-sell and up-sell strategies.
- Boost customer loyalty and retention.
- Reduce customer acquisition costs since existing customers are retained.
- Identify issues and phases in the lifecycle and improve the product or service offerings.
Here's how some SaaS brands improve on CLTV.
- Zendesk focuses on expanding its product suite to increase LTV. They optimize for cross-selling and upselling to existing customers.
- Shopify offers a large ecosystem of apps, plugins, and premium store themes to increase customer lifetime contribution to business revenue.
2. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total sales and marketing cost incurred to acquire a new customer.
As a SaaS business owner, calculating CAC is crucial for your business because it helps determine how much you can afford to spend on cultivating new customers—and still make a profit.
A high CAC means that you're spending more on acquiring new customers than their lifetime value. If you have low CAC, it means that each customer is bringing in enough revenue to cover the total cost of acquiring them.
3. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue is the total expected revenue generated from all active subscriptions on a monthly basis.
Put simply, it's the sum of monthly payments agreed upon by contract between the client and the SaaS provider.
For example, if you've 10 accounts and each pays $50/month, your MMR equals $500/month.
MRR is a powerful metric for companies that use a subscription-based business model. It allows them to predict future revenue, identify growth trends, pinpoint problem areas, and make strategic decisions.
4. Churn Rate
Churn Rate is the rate at which users stop using your software (cancel or don't renew) during a particular period of time. It's calculated by dividing the total unsubscribers by the total users at the start of the period and multiplying the result by 100.
The churn rate is crucial for SaaS businesses due to its impact on other key metrics like CAC and CLTV. The higher the churn rate, the lesser the customer lifetime value and the more frequently your business would incur CAC.
According to Baremetrics, both small and large SaaS companies saw monthly churn rates of around 3.5% through the first quarter of 2024.
What are the Best Practices for SaaS Sales in 2024?
To ramp up your SaaS sales, you must adhere to these 2 best practices:
1. Leverage Automation Tools
Automation tools like Zapier and HubSpot automate lead collection and scoring. You can use them to trigger follow-up emails, schedule appointments, centralize user objections, and create custom workflows using trigger and action elements to automate literally any SaaS sales process.
“The LinkedIn Sales Navigator is a useful sales account management and analysis tool, and the added AI capabilities make it better. Tools like Discover Org or contact search tools like Lusha are good armory for a sales representative or leader.” - Akhil Minocha, VP of Sales, CAST.
2. Personalize Messaging
By using insights from customer interactions (like website behavior or social media activity), sales reps can initiate conversations that feel relevant and timely, triggering emotions and immediate action from customers.
“Personalizing offers based on customer needs, preferences, and behavior increases the relevance and appeal of your cross-sell and upsell campaigns. Utilize tools like dynamic content, chatbots, and recommendation engines to customize messages and offers. Incentives such as discounts, free trials, or bonuses can enhance the perceived value. Ensure that personalization is balanced and does not compromise profitability.” - Stacey Carachure, Client Relations Expert.
Increase Your SaaS Sales with Warmly
We hope this guide gives you an in-depth understanding of what SaaS sales actually is. If you want a tool to help you with things like:
- Prioritizing leads to focus on.
- Engaging and nurturing leads with automated campaigns.
- Enable reps to reach out to hot leads straight from your website.
Sign up to Warmly.