With the dominant rise of SaaS (Software as a service) over the last two decades, traditional business indicators aren't necessarily viable for all of the key factors that could impact profitability for an ISV (Independent Software Vendor). Due to the ever-changing industry’s growth, various business strategies and metrics undertaken by non-SaaS companies might not always be impactful when duplicating them within the software world. As a result, ISVs have needed to think about different solutions and tactics to ensure success.
One fundamental business area that is changing fast is the way SaaS companies sell. B2B (business to business) consumers are becoming more savvy, aware and increasingly understanding of exactly what they want and need. ISVs need to think of alternative ways to increase their B2B sales and grow their business overall.
As an ISV, you have a solution that many businesses may want to implement but you have to reach an audience that may be wary of companies they’ve not yet heard of before. As a result, you need to regain focus and set realistic sales goals to achieve your ISV’s KPIs.
What is SaaS sales?
SaaS sales is the process of selling web-based products/software to new and existing clients. The focus of a SaaS sales team is to acquire brand new customers while also upselling and retaining existing users.
In many circumstances, SaaS is maintained, supported and engineered by a third-party organization. This means that ISVs have high costs and as a result, the price of the software is usually greater. Salespeople are facing a scenario where they need to understand that sales processes can take longer and there are many conversations to have before a customer feels ready to buy.
Sales and marketing teams tend to work together closely within the SaaS landscape and the marketing department will spend a lot of time generating leads and nurturing them until they are ready to be contacted by a SaaS salesperson. In general, the marketing team will find leads and allow the sales department to work their magic to arrange demos of their solution and work on closing the deal.
SaaS companies that are recruiting sales staff will regularly want someone with SaaS sales experience. The reason is because they have previously shown evidence that they can retain technical knowledge sufficiently and can demonstrate that to potential customers for closing deals. They need to be the “brand” of your company and it’s imperative that they understand all the benefits and opportunities that your product has to offer. As an example, in some circumstances, engineers and product managers have been known to take part in a sales demonstration if there is certain information that a salesperson would be unable to retain or explain.
SaaS sales models
To be able to hire a SaaS sales team, you must put in place a proper sales model/process to help you understand how many representatives you may need and how long it will take for them to close a sale. The correct SaaS sales tactic will indicate how your SaaS sales team will interact with potential customers and how to conduct business effectively and efficiently to allow your business to grow.
The three most common SaaS sales models are:
1. Self-service
Customer self-service is the chosen sales model to use when your software is fairly low-priced and you expect to generate a high volume of sales. This model assumes that your average sales price is low but you can still generate high numbers in revenue. These solutions (for example - music streaming platforms such as Spotify) tend to offer a free trial or freemium package to attract that larger customer base. Due to this, customer service is not fully comprehensive and few have a full sales force - just someone there to encourage users to sign up themselves.
2. Transactional
The most common and scalable sales model is transactional selling. ISVs who sell to SMEs (Small and Medium Enterprises) online, over the phone and in person usually prefer to use this sales strategy. The associated software cost is generally high and so sales teams are created to provide potential customers with a more personalized service to allow them to purchase. Transactional selling is perfect for customizable software that meets the needs of specific customers. Sales teams are usually given the freedom to vary pricing within contracts and this allows them to either provide discounts or add on specific requirements for that customer. Setting up a transactional SaaS sales team requires regular training to ensure that all team members exhibit the comprehensive knowledge of your business and your product.
3. Enterprise
The enterprise model is reserved for software that is usually sold at a lower volume but at a high price. This model is used by ISVs that know that their product is fully-scalable, highly specialized and more niche. The sales process is much longer, much more personable and prospective customers usually have plenty of questions. There can also be a larger number of “decision makers” and so salespeople may find themselves conducting several sales demonstrations. Sales teams using an enterprise model are usually organized by territory and focus on a specific target audience. Sales teams will work with a variety of departments within your organization to ensure that the large sale is closed. An enterprise sales model is important for ISVs who offer a more comprehensive service – the high price covers exceptional customer service, the unique relationship with your clients and invoicing, contracting and administrative costs.
Depending on which is the right sales model for you, you should now have an idea of what type of B2B salespeople are needed and how to deploy them.
How do I hire SaaS salespeople?
Traditionally, salespeople are personable people who are incredibly important to your business as they have been hired to sell “ice to an eskimo”. With SaaS sales staff, you have to consider the following 5 questions:
- Can they easily retain complicated information?
SaaS can be complex and they need to know what your solution does. Your SaaS salesperson must be able to clearly demonstrate the ability to take in a bundle of information and regurgitate it clearly and simply to demonstrate how it would benefit your potential customers.
- Are they tech savvy?
Technological advancement has been impossible for anyone to have avoided over the last few years. Your salesperson needs to be able to use your tools and processes easily. They must possess the ability to demonstrate your product simply to your potential customers as it will instill confidence in the buyer.
- Can they communicate well both remotely and in person?
This has become even more relevant with the global outbreak of COVID-19 in 2020. Remote work is becoming more common and your sales team will need to be able to sell your product both in person, over the phone or a video call. Your future client needs to feel confident when parting with their money especially if they are based on the other side of the globe.
- What are their motivations?
Salespeople are motivated by money. This is important as commission structures are usually put in place to encourage staff to sell, sell and sell. Depending on your solution, your sales process usually takes longer than traditional selling tactics. Your future sales recruit needs to be fully aware of how long the sales cycle is expected to take and how a bonus structure will be paid out.
- How long do they believe the sales process should be?
As mentioned in the previous question, SaaS sales processes tend to take longer. Asking the candidate their expectations regarding the sales cycle, allows you to gauge whether they have a clear understanding of both sales in general and how it works within the SaaS industry.
These questions are imperative to hiring the right candidate for SaaS sales. According to Indeed, SaaS Sales Representatives within the U.S. earn, on average, $61,370 a year (June 2020). This is usually higher than a normal sales representative due to the broad and deep knowledge needed for a ISV salesperson to exceed their targets.
What are the top SaaS sales metrics?
Now that you are aware of the right SaaS sales model for your ISV and you know what to look for in SaaS sales employees, you need to think about SaaS sales targets and SaaS sales metrics.
SaaS sales staff are accountable for a variety of demanding metrics. SaaS commercial teams need to focus on the following key metrics to ensure your business growth:
1. Lead Velocity Rate
Lead Velocity Rate (LVR) is the qualified lead growth rate per month. This metric indicates the prospects of future sales and revenue growth. Increasing the LVR will also increase overall revenue.
You can calculate your LVR with the following formula:
(Qualified Leads This Month - Qualified Leads Last Month) ÷ (Qualified Leads Last Month) x 100
From this, you’ll know your growth rate for new leads each month.
2. Conversion Rate
Conversion is the term coined for each target action that a future user of your software has to take. This could be anything from establishing contact with prospects to actually signing up with your service. This helps you decipher which sales tactics will bring you the highest profits.
You can calculate your conversion rate with the following formula:
(Total number of sales) ÷ (Number of leads) x 100
If you have a SaaS sales funnel with a number of substeps that can’t be separated, it’s important to calculate this metric for each of those stages separately.
3. Monthly Recurring Revenue
Monthly recurring revenue (MRR) is an important metric for all ISVs. This metric will determine the attractiveness of your software to both entrepreneurs and investors. This is easy to track and is a metric that averages all of your subscription plans and calculation periods and puts them both into one core common indicator.
You can calculate your MRR with the following formula:
(Number of clients) x (Amount of your monthly revenue)
The amount of your monthly revenue is determined by the subscription cost of your service.
4. Average Revenue Per User
Average revenue per user (ARPU) is another metric that can be precious for your ISV. ARPU reflects how much your user spends on your product per month on average. You are able to calculate the preferences of each client group based on their previous purchasing history.
You can calculate your ARPU with the following formula:
(Total MRR) ÷ (Total Customers)
This metric allows you to pinpoint the most popular price ranges and upselling trends.
5. Customer Lifetime Value
Acquiring new customers can cost between 5 and 25 times the price of retaining existing users. The customer lifetime value (LTV) metric allows you to act on that retention statistic as it reflects on the total revenue for the customer for their whole period as your client. Calculated properly, it helps you understand consumer spending habits and their interests.
You can calculate your LTV with the following formula:
(Average order cost) x (Number of purchases) x (Loyalty period)
Taking into account the LTV when calculating the Return on Investment (ROI) will help you see the whole picture of your business’s profitability and how you can manage it.
6. Customer Acquisition Cost
The customer acquisition cost (CAC) is a metric that focuses on your overall sales and marketing expenditure when acquiring new clients. In short, it’s the total cost of all marketing and sales efforts to engage one new customer.
You can calculate your CAC with the following formula:
(Marketing expenses over a specific period of time) ÷ (Number of customers over a specific period of time)
This is a metric that changes depending on your growth and various marketing campaigns.
7. Cumulative Cohort Revenue
An alternative to CAC is Cumulative Cohort Revenue (CCR). This is a formula that helps ISVs understand the value of their customers. This is the total amount of revenue generated from customers acquired by the business over a certain period of time.
You can calculate your CCR with the following formula:
(CCR for a Cohort in the 12th Month) ÷ (Total amount of sales and marketing costs in the first month of the cohort)
This formula includes a period of time to guarantee that you are comparing your current total revenue from one particular cohort with the amount you spent acquiring it.
8. Customer Churn Rate
The churn rate is the loss of clients reflected in the absence of purchases. This term applies to the businesses where purchases are made often. This metric is crucial for subscription and transaction business models.
You can calculate the customer churn rate with the following formula:
(Number of clients that left by the end of the month) ÷ (Total number of clients paid for the next month) x 100
Customer churn rate is not informative as a metric alone. Churn as a structure is more complex, you need conversations to understand which clients are prone to churn and why and what factors cause your customers to churn.
9. Monthly Active Users
The monthly active users (MAU) metric reflects the number of active users per month. No formula is needed as you are only counting the number of unique users and not each session.
10. Lead to Close Rate
The final metric is the lead to close rate (LCR) and it will tell you how many people are ready to subscribe to your service in a certain time period. Monthly calculations help you understand how much of the targeted traffic you get and whether your sales department processes have been placing orders properly.
You can calculate your LCR with the following formula:
(Number of clients over a certain period of time)÷ (Total number of leads over a certain period of time)
These metrics are key to the success and the growth of your business. They help you to understand whether you have the right sales model, the perfect sales team and the best sales processes. Your sales strategies may change depending on the stage you're at as a business and your rate of growth.
CardConnect is committed to helping businesses grow and develop, LaunchPointe has been created to provide you with the resources that you need to take your ISV to the next level. Click here to get started with the Integrated Partners Program.