The SaaS sales process is unique. Why? Because it deals with intangible products rather than physical ones. As a result, the industry has developed its own specific set of sales skills, key metrics and processes. To develop a great SaaS sales engine and power growth, you’ll need to master these techniques – whether for yourself as a salesperson or as a sales leader building a winning team.
SaaS sales is the process of selling subscription access to cloud-hosted software products either to businesses, prosumers or consumers.
For business customers, these products are designed to tackle various pain points and make the customer’s business more successful. Just like any B2B product, this usually involves saving the customer time, money, or human resources.
SaaS sales also incorporates products with B2C business models, such as Spotify, Netflix or Evernote. B2C customers typically have smaller budgets and prefer to pay monthly.
In both B2B and B2C SaaS, customers normally access the product through an online portal or dashboard and pay via a monthly or annual subscription fee.
Much of the difference revolves around the added complexity of the SaaS model. Most SaaS products deal with complicated business processes, such as managing revenue delivery across subscriptions, payments and compliance, and are built on successfully retaining customers over a period of time – rather than converting prospects for a one-off transaction.
To make sure the prospect understands exactly how to use the product, SaaS sales reps must provide substantial education as part of the sales process – more than would be expected during the purchase of a physical product.
This education is an essential step, because without fully understanding the product’s capabilities, the prospective customer won’t feel confident enough to make the investment. The SaaS salesperson must unearth the customer’s problems then explain how the product can solve them.
As well as the need to educate potential customers about the product, the SaaS sales process involves a number of added challenges.
SaaS products operate with subscription-based pricing models, usually monthly or annually. This setup is good for the SaaS company, as it brings regular and predictable revenue.
But for the customer, subscription-based pricing models can mean a high investment. If the customer uses a SaaS product for many years, their subscription will add up to a substantial sum of money – often tens of thousands of dollars.
That’s why, for the customer, signing up for a SaaS subscription is not a decision to be taken lightly. Before closing a sale, SaaS sales reps often need buy-in from several key decision-makers across the target company.
What's more, SaaS products come with many features, so prospects must spend time deciding which ones are necessary for their business. This process, plus interacting with all the decision-makers, adds large chunks of time to a typical SaaS sales cycle.
An effective sales cycle is tailored around your SaaS sales model. Let’s take a look at the different SaaS sales models.
Choosing the right model for your SaaS sales is the key to deciding how many sales reps you need and how best for them to work with your customers, including the all-important close. Getting the right model depends on the nature of your SaaS product.
This product-led model is a good fit for selling lower-priced, high volume SaaS (for example, a Spotify subscription or WordPress theme). The self-service model works best with software that’s easy to use and doesn’t involve complex business processes.
To attract customers, the self-service model often leverages free trials or a freemium model (such as with Asana or MailChimp). Users tend to be individuals who sign up online themselves. Most of the time, having a full sales team is unnecessary for the self-service model.
Most B2B SaaS sales happen via a sales-led model. The most common sales-led model is transactional sales, which involves selling software to SMEs, usually over the phone. Software at this level costs more, so buyers will need more personalized service – meaning you’ll need a sales team. Sales reps normally have a certain level of autonomy, such as the ability to offer discounts and guide customers towards tiered pricing models. Challenges include the need to focus on the highest quality leads, to maximize salesperson efficiency.
Enterprise sales is the second sales-led model, dealing with software sold at high price and low volume, such as social listening platforms or data analytics tools. Because these SaaS products are highly specialized and large-scale, enterprise sales reps usually need to spend substantial time with their prospects. During this long sales cycle, reps will provide product demos, meet with key stakeholders, and answer a wide variety of questions, many of them technical in nature.
Enterprise SaaS sales reps need to acquire extensive technical knowledge of the product. Typically, they work closely with engineers and product marketers to gather the information needed to close such high value deals.
Target audiences for enterprise sales usually consist of large companies with sufficient budget to afford high price, niche SaaS solutions. One major challenge is the long sales cycle, which can lead to significant opportunity cost if the sale ends up lost.
Many SaaS businesses (both B2B and B2C) offer a free trial at the beginning of the sales process. A free trial is a fantastic way to attract new customers, as it allows them to understand all the benefits of your product. But you'll need a strategic approach to make the free trial model worthwhile.
For starters, the length of the trial should vary according to the complexity of your product. A seven-day trial is fine for a simple or lower-cost product (e.g. a streaming service or fitness subscription), but enterprise business software normally requires a more substantial 30-day trial period.
During a longer trial, it’s also a great idea to check in with your prospects regularly. This helps to gather their feedback while also keeping them engaged with the product.
SaaS products often have an extensive feature set, so it's important not to overwhelm the buyer when conducting a demo. Your sales rep should start by researching the buyer so they can tailor the demo to solve specific problems. When scenarios feel directly relevant, prospects will more easily understand how the software can help them.
Most SaaS subscriptions offer a monthly and an annual contract. But how do they differ when it comes to sales?
According to Jason Lemkin of Saastr, SaaS businesses should always let the customer choose whether they prefer to pay monthly or annually. For small businesses and individuals, that often means taking the monthly option. But annual contracts are better for SaaS businesses, as they reduce the chance of churn while also being great for cash flow.
If small businesses make up most of your customer base, then you should offer a monthly contract option. On the other hand, enterprise clients usually prefer to pay annually, because they already have the budget and it's a headache to reconcile monthly invoices.
The key takeaway: tailor your plan types to your target audience. If in doubt, offer both options.
The sales cycle is the journey from prospect, to a closed-won deal. Understanding your SaaS sales cycle is essential for creating accurate revenue forecasts. There are several key factors to take into account here, which we’ll unpack in this section.
Taking all of those factors into consideration, you can start to look at the different stages in a typical sales process. Breaking the process down into stages makes it easier for sales reps to understand the process and build their own workflow around it.
After going through the sales process, examining key sales metrics will tell you whether your efforts have been successful.
The SaaS industry uses numerous sales metrics, but the ones detailed here are typically the most critical for your company’s bottom line.
Net revenue retention provides essential insights on how secure your SaaS business is. It tells you how much recurring revenue from current customers your business has retained over a certain time period. NRR factors in customer upgrades, downgrades and churn. You can use NRR to assess how much your business could grow based on your current customers (without acquiring new ones). Here's how to calculate net revenue retention.
Ideally, you should aim for over 100%, but the higher the better. High NRR means your customers are happy and you’re delivering them value. In 2021 and beyond, businesses and consumers are likely to suffer from increasing subscription fatigue, partly as a result of the COVID-19 pandemic. NRR will become a vital metric for SaaS sales in this challenging environment.
MRR refers to the amount of revenue your company expects every month, based on the value of existing customer subscriptions. You can calculate it by adding up the monthly fee that every customer pays you. MRR is important because it pays your company’s basic bills every month– essential for the company’s day-to-day operations.
ARR provides an annual picture of expected revenue, which can be helpful for longer-term planning. It's a measure of the amount of revenue you expect to bring in for one year based on the current value of all active subscriptions. In short: it’s MRR x 12.
For this metric you factor in the total cost of your sales and marketing efforts, then divides them by the number of deals closed. If your company uses a self-service or transactional sales model, the CAC is normally lower. In contrast, if you're doing enterprise sales, it will be higher. Knowing your CAC is key for gaining important strategic insights, revealing issues such as scaling too quickly (high CAC), or opportunities to invest in boosting growth (low CAC). Read our guide for more on CAC and how to manage it.
On the flipside of customer acquisition, there’s customer churn. Churn rate is the percentage of customers leaving every month or year. You can calculate churn rate by dividing the number of customers leaving during a given period, by the total number of customers during the same period. To get the percentage, just multiply the result by 100. When measured against industry benchmarks, churn rate helps you evaluate your company’s overall health. That makes churn rate one of the essential SaaS sales metrics.
Some SaaS companies have had success reducing their churn rates by introducing Net Promoter Score surveys. NPS surveys ask participants how likely they are to recommend your product to a friend.
Based on final scores, the responses are sorted into three categories:
Subtract the percentage of detractors from the percentage of promoters – to arrive at your total NPS score. The most valuable part of NPS surveys is the customer feedback. Armed with this data, your team can find out how they can provide a better experience to the dissatisfied customers. Here’s a great example of how to use NPS for SaaS.
Essential for evaluating potential business success, customer lifetime value is a key SaaS metric. It tells you how much revenue a typical customer will bring in during their relationship with your company. To calculate LTV, multiply customer value (average purchase value multiplied by average purchase frequency rate) by average customer lifespan.
This important metric helps you measure the performance of your SaaS sales team. It’s the percentage of total leads your sales team closes over a specific period. Although the metric itself seems simple, there are multiple ways to calculate it. Here’s a useful article that dives into the different win rate calculations in detail.
Knowing the win rate of your sales team tells you how many leads you'll need in your pipeline to hit your sales goals. It also helps you identify sales reps who may need additional training and support.
A sales qualified lead is a prospect who, according to sales cycle data, is ready to talk to a sales rep. They might not be ready to buy just yet, but their actions show that they’re ready to learn more about your product. Exactly what constitutes a sales qualified lead will vary according to your specific product, sales cycle, and target audience.
This metric is important to learn how quickly your leads are growing month over month. MRR can only tell you so much: as it gives a snapshot of the present moment. Lead velocity rate, on the other hand, reveals whether leads are coming in faster than revenue – enabling you to forecast future growth.
Deal velocity is the average length of time a lead takes to travel through your sales pipeline. It's a particularly important metric in enterprise sales, where sales cycles tend to be lengthy. Don’t overlook deal velocity, as too much time spent on a single deal can damage your team’s overall consistency in moving new deals through the pipeline.
When a prospect makes payment or signs the contract, a deal can be marked as ‘closed-won'. But if they choose an alternative solution, the deal is considered ‘closed-lost'. A sales rep’s ratio of closed-won to closed-lost shows how efficient they are overall. Closed won/lost is a metric closely tied to overall revenue.
Having the right salespeople is essential for achieving great results in SaaS sales. In this section, we’ll go over some tips for building a top-notch SaaS sales team.
Depending on your SaaS business and sales model, your team might contain some or all of the following roles, each with a slightly different focus area.
SaaS sales people deal with complex technical products, which requires highly specialized knowledge.
As a result, SaaS sales is highly paid and has become a lucrative field for skilled salespeople. The most common compensation structure for SaaS salespeople is a base salary plus commission for each deal closed.
According to research from job site Indeed, the average US annual base salary for a SaaS sales rep is $65,287.
The UK is a good place for high salaries in enterprise SaaS sales, with a base salary for an enterprise senior sales rep going up to €132,000 (around $160,000), according to research from Intrinsic Search.
Commission makes up a large part of a SaaS sales rep’s total compensation. Sales reps usually receive commission based on monthly or annual recurring revenue.
Sales commission structures can vary. Some companies award commissions only after the new client has made payment. This avoids the risk of the customer churning quickly or canceling the agreement (for example, using a 14-day money-back guarantee or similar).
In other cases, companies might use a tiered commission structure. Here, the sales rep’s commission percentage increases the more they exceed their quota.
There’s also profit-based commission, where sales reps receive compensation according to the profit the company makes on the deal. This commission structure can be useful to encourage reps to focus on closing larger deals.
Lastly, there’s the residual commission structure, where sales reps receive a percentage of revenue every time a customer renews their subscription.
Power your SaaS sales with a robust revenue delivery strategy:
Learn how we can help you run and grow your software business with Paddle. Get in touch with the Paddle team today.
Paddle has been an integral part of our enterprise journey, providing support with billing and licensing deals that has helped increase our global revenue growth.
Sandra Tandowsky VP of Operations