What Are The Key SaaS Sales Metrics?
Aside from the actual product, the Sales team is usually considered one of the essential parts of a startup. Without people and an effective sales process, a product will sit on the shelf and ultimately fail. As your business scales, building a scalable sales process that will enable you to scale in step with your company is essential.
What Is SaaS Sales?
SaaS Sales is the sales process used by SaaS companies. It is a form of sales focused on selling software as a service (SaaS) to businesses.
In SaaS Sales, it is essential to have the tools and insights you need to plan, track and execute each stage of the sales process, from lead generation to closing deals. Saas Sales also uses customizable dashboards and reports that give you access to real-time data on every step of the sales process so you can make informed decisions about your strategy and tactics.
What Are the Key Metrics of Importance in Saas Sales?
SaaS salespeople often have to juggle multiple metrics and KPIs. You can use many different metrics to gauge your team's success, but some are more important than others. Here are the key SaaS Sales metrics that you need to track:
What Is The Sales Pipeline?
This is the number of potential customers who have expressed interest in your product or service. This should be tracked every week and reported daily. Your sales team should be able to register how many deals they're working on, how many deals they expect to close in the next 30 days (or whatever period makes sense for your company), and how many sales they need to complete to hit their quota.
What Is Customer Acquisition Cost?
Customer acquisition cost (CAC) is the total amount spent to attract and retain a new customer. CAC includes marketing, sales, and other expenses associated with acquiring new customers.
CAC is often expressed as a multiple of gross margin, as ‘the company's CAC was 3x gross margin’. This means that for every dollar of product sold, the company spent $3 on customer acquisition activities. CAC can also be expressed as a percentage of revenue or bookings.
Companies use CAC to measure their efficiency in acquiring new customers, which is essential when identifying ways to reduce their spending on growth activities while still growing their business.
What Is New Customer Acquisition?
This is the number of new customers added during a specific period. This metric is critical because it shows whether or not your team is hitting its targets and can help you identify gaps in your sales cycle to improve conversion rates down the road.
What Is The Win Rate?
The Win Rate is a crucial metric for companies focused on SaaS. It measures how many qualified leads have converted to paying customers after signing up for a free trial.
You need to know your win rate if you are running a SaaS business. It tells you how many of your free trial users convert into paying customers. This metric can help you determine whether to invest more resources into marketing, onboarding, and support. Or rather, scale back and focus on improving the customer experience with fewer resources.
In addition, knowing the win rate helps you predict how many new customers you will acquire in any given month or quarter. For example, if your win rate is 10%, you will receive 10 new paying customers who are qualified leads (free trial users) each month.
What Is Average Revenue Per Customer/Per Month?
This is the average revenue per customer/month and reflects how much revenue each customer generates over their lifetime with your company. This is another critical metric because it tells you how much is spent.
What is Monthly Recurring Revenue (MRR)?
Monthly Recurring Revenue is the total amount of money your business gets from monthly subscriptions. This is an excellent way to measure the health of your business, as it shows how much you are earning each month. You can also use MRR to compare your income across different periods of time and compare it to competitors.
MRR measures all recurring revenue from customers who will continue their subscriptions over the next month. The formula is simple:
MRR in Dollars = Monthly Recurring Revenue / Average Contract Length (ACL).
What is Customer Retention?
Customer retention is the process of retaining your customers. It's essential to keep customers loyal because they are more likely to buy from you again, or sustain their subscription. They are also more likely to tell their friends about your business, and they are more likely to refer your company to others.
Customer retention is the most effective way to increase your customer base because it costs less than acquiring new customers. Also, it has a higher return rate. The best way to retain customers is through loyalty programs. Here are some tips for increasing customer retention:
- Give them what they want - if someone buys something from you, it's because they want it. If you can find out what else they want, give them that too.
- Offer discounts on related items or services to encourage repeat purchases from existing customers rather than finding new ones.
- Deliver quality service - this includes everything from responding quickly to inquiries, offering excellent technical support when needed, and resolving problems rapidly when possible. This way, customers don't feel like they need to contact you again in the future (which will save both parties time).
- Make it easy for customers - make sure that your website is easy for visitors to navigate and understand how everything works.
What Is The Customer Lifetime Value?
The Customer Lifetime Value (CLV) is the total amount of money a company will earn from a customer over their lifetime. In other words, it's the sum of all the revenue you generate from a specific customer.
Customer Lifetime Value estimates how much money you can expect to make from each customer over their lifetime. It's calculated by multiplying your average customer purchase value by their average lifetime in years.
This formula assumes that each customer will make purchases at regular intervals over time. For example, suppose you have customers who purchase once every three months. In that case, your CLV will be calculated as the sum of all future purchases for those three-month periods multiplied by the average annual purchase value per period.
Some companies also consider factors such as churn rate and upsell potential when calculating CLV because they want to ensure they're making enough money from each customer to justify spending resources on acquiring new ones.
What Is Churn?
Churn is the percentage of customers who stop using a product or service. It's an important metric to track because it can help you understand how your customers behave and whether they are happy with their subscriptions.
You can think of churn as a measure of customer satisfaction. A high churn rate means that many of your customers aren't satisfied with your product or service, so you need to work on fixing the issues causing them to leave.
Churn is calculated by taking the number of subscribers that cancel in a particular period and dividing it by the total number of subscribers at the beginning of that period (Cohort Analysis). For example, if you have 100 customers in your first month and 75 leave in month two, your monthly churn rate would be 75%.
What Is Lead Velocity Rate?
Lead velocity rate helps measure your effectiveness at generating leads and comparing it to other companies in your industry. The higher the lead velocity rate, the more effective your marketing attracts new customers.
Lead Velocity Rate = Lead Volume / Time Period
Let's say you want to know how many leads you need to generate to reach 100 sales per month. You understand that each piece of information is worth $1,000, but you don't know how many leads you need to create monthly to reach 100 sales per month. That's where lead velocity rate comes into play.
If your lead velocity rate is 1% (meaning you generate one lead per month), then 100 leads will take 100 months or 10 years! That's a long time! Assuming a 5% lead velocity rate (5 leads per month), we'll need 50 months or just under 5 years to reach our goal of 100 sales per month.
The same principle applies to forecasting future growth: if your company has been growing by 3% each year, then this means that in one year alone, it will double its size.
Wrapping Up
Not all SaaS products are priced the same. Some are highly complex and, as such, require a more significant price point. Others are less complex but just as important. None of these factors change the importance of understanding how to sell SaaS successfully and knowing what SaaS Sales Metrics are important.
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