SaaS Sales: The Ultimate Guide

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November 18th, 2020.
SaaS Sales: The Ultimate Guide

If you identify SaaS as something your mother told you never to give her — think again. Software as a service, or SaaS, is software that’s accessed, managed, and used on the internet. It’s the present and future of software, and it requires a different type of selling.

This guide will teach you the basics of SaaS sales. From commission to sales cycles, models, and metrics, you’ll learn the different ways of selling this unique software and what you can expect from the job.

Table of Contents

  1. What is SaaS?
  2. What is SaaS Sales?
  3. SaaS Sales Salary
  4. SaaS Sales Commission
  5. SaaS Sales Cycle
  6. SaaS Sales Models
  7. SaaS Sales Metrics

1. What is SaaS?

Remember the days of unwrapping CD-ROMs, uploading them to your computer, and only having access to that software from your computer? Those days are gone. SaaS is hosted, secured, and updated by an outside vendor.

This means SaaS often yields lower entry costs than traditional software, easier upgrades, and better integrations. What's left is a more advanced, user-friendly, and evolving product.

2. What is SaaS Sales?

SaaS sales is the process of selling web-based software to clients. Salespeople focus on acquiring new customers and upselling or retaining current clients.

Because SaaS is supported, maintained, and engineered by an external company, the price is usually high requiring a longer sales cycle and more touch points from Sales and Marketing before the customer is ready to buy.

Marketing nurtures each lead until they are "sales qualified." Then, a salesperson follows up with the prospect to gauge next steps. Just because a lead is sales qualified doesn't mean they're ready to buy — or ready for a demo.

SaaS salespeople must clearly communicate the benefits and features of their software. And it’s important to tailor each presentation to meet the needs of each prospect. Service and attention are key to getting the prospect to close, because SaaS reps are usually selling at a higher price.

Reps also must be well-versed in how the software works to demonstrate and troubleshoot the product during presentations.

Because SaaS can be so complex, it’s common to bring engineers, executives, or product marketers into some meetings to make a difficult sale. Knowing when to ask for help is another sign of a qualified SaaS rep.

3. SaaS Sales Salary

Because it's necessary for SaaS reps to have a deep working knowledge of the software, product roadmap, and frequently asked questions, their base salary and commission is usually higher than reps in other verticals.

Here are three benchmark studies to illustrate the average salary for SaaS sales reps:

  1. In a recent study of more than 160,000 salaries, job aggregator Indeed calculated the national average base salary to be $64,379 for a SaaS account executive and $49,216 for an account representative.
  2. Workplace hub Glassdoor calculated the average base salary for a SaaS specialist to be between $34,613 and $53,000.
  3. And The Bridge Group, an inside sales consulting firm, calculated the average base salary for a SaaS inside sales rep to be $60,000 — with on-target earnings of $118,000.

As with most sales jobs, commission is commonly added on top of the base salary and varies per individual compensation plans.

4. SaaS Sales Commission

SaaS commission, like other sales verticals, is paid when a rep closes new business or renews existing accounts. It’s awarded based on monthly recurring revenue (MRR) or annual contract value (ACV).

Some organizations wait for new clients to submit payment before awarding commission. This model is meant to avoid paying commission on a customer that churns quickly or reneges on their agreement.

The accelerator model of commission means for every dollar a rep brings in over goal, their commission rate increases by a percentage point (i.e., if a salesperson attains 115% of goal, their commission rate increases by 15%).

Other organizations tier their commission rates. In this model, the first tier of compensation covers 100-110% attainment, the second tier covers 110-125% attainment, and the third tier covers 125% attainment and beyond. For those salespeople hitting the third tier, the President’s Club is often offered as a prize.

Some compensation packages won't disburse commission until a rep brings in enough revenue to cover their base salary and the cost of their benefits.

Once they've closed enough business to cover their cost, however, these reps usually receive commission at rates more than double those of a normal model.

5. SaaS Sales Cycle

SaaS sales cycles vary depending on price, customers, and product complexity. A product that’s $100/month will likely have a faster sales cycle than a product costing $50,000/year.

The more expensive your product is, the more stakeholders will involved which can lengthen your process by weeks or even months. Here are four additional factors that slow down SaaS sales cycles:

  1. New markets: If you’re selling to new markets, your sales cycle might be longer because you'r spending more time communicating your use case and value to potential clients. This will extend your sales cycle, but it’s crucial to educate new markets before selling to them.
  2. Enterprise business: Selling to enterprise-level companies increases the number of stakeholders needed to sign off and is usually accompanied by more legal and technical red tape.
  3. Complex software: Similarly, the more complex your software is, the longer your sales cycle is likely to be. In this case, it’s important to make sure the right prospects are in the room during your demo to champion your cause to less savvy colleagues.
  4. Free trials: Free trials can also affect SaaS sales cycles. If you offer a 30-day free trial, this could lengthen the sales cycle significantly.

Still not sure how long your sales cycle should be? Sales pro Matt Bertuzzi lists the following sales cycle averages for B2B SaaS businesses:

If your sales cycle takes too long, consider cutting a free trial from 30 days to two weeks. Bring in a professional writer/storyteller to help you communicate your complex software offering in a more understandable way.

And work with your marketing team to educate new markets before conducting outreach. Lastly, if you know your sales cycle will be lengthy due to enterprise clients or other factors, build that time into your budget. No salesperson can perform well under unrealistic goals.

6. SaaS Sales Models

The proper sales model indicates how many salespeople you should hire, how you'll interact with your customers, who they are, and how you'll close their business.

It's crucial to choose the right model and know when your organization needs to evolve. Here are the three most common SaaS sales models.

1. Choose Your SaaS Sales Model: The proper sales model indicates how many salespeople you should hire, how you'll interact with your customers, who they are, and how you'll close their business.

It's crucial to choose the right model and know when your organization needs to evolve. Continue reading to understand the three most common SaaS sales models and determine which one works best for you.

2. Customer Self-service: This model works best when selling lower-priced SaaS at a high volume (i.e., Spotify subscriptions, a Medium membership, or a phone plan). It assumes your average selling price, or ASP, is low while allowing you to bring in significant revenue.

Freemium models and free trials are common strategies for attracting customers in the self-service model. Customer service is not comprehensive and this model often can’t support a full sales team. Instead, websites encourage users — usually individuals or small teams — to sign up online.

3. Transactional Sales: Transactional selling is the most common and the most scalable of the three models. This software is typically sold to small and medium businesses over the phone and occasionally in person.

Since the cost associated with this level of software is generally higher, the buyer requires more personalized service to make a purchase, thus necessitating a sales team.

Software sold by the transactional model should also be customizable to service the needs of a variety of use cases. Contracts generally range in price and reps are empowered to provide discounts and share tiered pricing models.

These salespeople have a pipeline fueled by a marketing team, and they're required to undergo training, exhibit a comprehensive working knowledge of the product, and meet monthly or quarterly quotas.

4. Enterprise Sales: This model is reserved for software sold at low volume and high price. These solutions are often full-scale, highly specialized, or cutting edge. Enterprise salespeople will regularly spend months working closely with prospects to answer questions, demo the software, and meet with executive stakeholders.

Enterprise sales is a popular choice for complex or niche SaaS benefiting larger companies or corporations with the budget to support the high cost of these solutions. Sales teams are often organized by territory and focus on a targeted set of prospects.

Because there are so many working parts to this sales model, reps work closely with product marketers and engineers to source the answers and information they need to close high-value deals.

Here's a bonus tip for you: Know your ASP. A higher average selling price (ASP) means your prospect will expect inclusive customer service, a better business relationship, a signed contract, and invoicing. If you have a low ASP, it’s unlikely you can afford or need a sales team.

Before hiring your first salesperson or expanding your existing team, understand your average selling price and make an educated decision on when and who to hire.

5. Strategic Trial Periods: Many SaaS providers have a free trial offering as part of their sales process. A free trial is a great way to hook new users, however, in order for it to be worthwhile for your company your approach to free trials has to be strategic.

When a customer has the opportunity to do a trial, they are able to see the true value and benefit your offer provides. While there is no one-size-fits-all rule for how long the ideal trial period should be, here are some common trial lengths to consider, along with their benefits.

  • 7-day trial period: If you offer a simple or straightforward product that a new user could pick up and adopt quickly, having a short trial period could be a good option. Additionally, if you offer a lower-cost product and don’t want to add unnecessary length to your sales process for a modest sale, you may also want to consider having a brief trial run.
  • 14-day trial period: A two-week trial period is common practice for many SaaS providers. For companies that sell SaaS B2B or have products with multiple tiers and added complexity, this trial period length could be a good sweet spot. While 14 days is still relatively short, it is enough time for a user to explore various features and benefits of the product while being brief enough to not hold up the sales process.
  • 30-day trial period: For companies that have more complex offerings, or who take an enterprise approach to selling, an extended month-long trial could be a better option. Additionally, if there are various stakeholders who need to buy-off on the implementation of a product, having a longer trial period can be useful.

Regardless of how long your offer period is, it’s important to maintain regular communication with your prospects while they are trying your product. By checking in with them during the trial period, you can hear their feedback real-time, and you can keep them engaged and interested in the product. For many trial offers, buyers are left on their own to explore making it easy to lose momentum.

In addition to staying in contact with your trial users, the trial period can provide valuable insight on their usage and behavior patterns which can give you a good indication of how likely they are to buy, and how they would use the software after purchasing.

6. Provide Valuable Demos: The last thing you want to do is create an information overload situation for your prospects who participate in demos. For SaaS providers, the ability to conduct an effective demo is incredibly important.

A good demo should demonstrate the value your product can offer the buyer, not overwhelm them with redundant information about features. One of the best ways you can prepare for demos is to begin by researching the buyer and understanding what problem they want your software to solve. When you know what they’re looking for, you can walk your prospect through hypothetical scenarios that are relevant to them, clearly demonstrating the value of your software and how using it will make their life easier.

Aim to make your demos as straightforward as possible, walking the prospect through simple ways they can receive the most benefit from using your product, and leaving plenty of time for any questions they may have.

7. Leverage Annual Plans: Many SaaS companies charge customers on a monthly subscription model to use their product. Though that’s a great way to bring in recurring revenue, including an annual subscription model can be a helpful strategy for pulling in more funds upfront and improving customer retention.

By encouraging buyers to prepay for a year of your software at a discounted rate, it can provide necessary cash for your business and decreases the likelihood for cancellation.

7. SaaS Sales Metrics

SaaS salespeople are held to demanding metrics. But which one’s matter? Jason Lemkin, co-founder of two successful SaaS businesses, founder of the SaaStr Blog, and arguably the godfather of SaaS, warns, "Don’t obsess over sub metrics, but obsess over the key metrics that tie into your revenue growth."

Here are a few key metrics SaaS salespeople should obsess over.

1. Churn: Your churn rate is the percentage at which you lose customers on an annual or yearly basis. To calculate churn, divide the number of customers you’ve lost by the number of customers you started with. It’s worth noting that a negative churn is a good thing — meaning you gained more customers than you lost.

2. Net Promoter Score: Net Promoter Score (NPS) measures customer experience and predicts business growth. Users answer relevant questions using a 0-10 rating scale. For example, "How happy are you with [insert SaaS name]?"

A score between 0-6 would label your customer a "detractor" who's unhappy with your brand and could stunt growth with negative reviews or word of mouth. A score of 7-8 means your customer is "passive." They’re satisfied with your product but might be vulnerable to competitive poaching.

And if a customer scores you between 9-10, you’ve got a "promoter" on your hands. This person is a loyal enthusiast, likely to be a continued customer and refer new business.

To calculate your NPS — which ranges from -100 to 100 — subtract your percentage of detractors from your percentage of promoters.

If you have a low NPS, it matters less how much business you’re bringing in, because your customers are likely churning at an alarming rate. A high NPS, however, signals satisfied customers and the potential for sustainable growth.

3. Monthly Recurring Revenue (MRR): This is the income your company knows will arrive every 30 days. A monthly fee is agreed upon in the contract between client and SaaS provider, and the amount is paid on or by a certain date.

4. Annual recurring revenue (ARR): This metric is often used by SaaS and other subscription-based businesses. The annual recurring revenue (ARR) represents the value of recurring revenue your client agrees to pay over or on an annual basis.

5. The number of sales qualified leads: A sales qualified lead (SQL) is a potential buyer who data indicates is ready to talk to a salesperson. This doesn’t mean they’re ready to buy, but they’ve taken a series of actions that predicts an inclination to learn more.

The definition of a qualified lead will differ depending on your solution, audience, and sales cycle. Salespeople often rely on IBM’s BANT system for identifying SQLs. BANT simply asks if your lead has the budget, authority, needs, and timeline to buy. If so, it’s time to reach out.

6. Lead velocity rate: How quickly are your leads growing month over month? Even if MRR growth is steady, this might only indicate how you’re doing in the moment, instead of forecasting future growth.

The lead velocity rate shows reps whether leads are coming in faster than revenue, which allows you to calculate growth, goals, and milestones further out.

7. Revenue per lead: By measuring the revenue each rep brings in per lead, you can estimate an accurate number of leads a rep can manager before productivity suffers. Look beyond the MRR and improve or maintain rep performance.

8. Customer acquisition cost: Divide the total cost of Sales and Marketing by the number of deals closed to learn your customer acquisition cost (CAC). This number will be lower for companies using a transactional sales model and higher for organizations focused on enterprise sales.

If your customer acquisition cost is too high, you might be scaling too quickly. If you have a low CAC, look at areas where you can invest in growth or increase revenue.

9. Closed won/lost: A deal is marked "closed-won" when a contract is signed or payment is rendered. Alternately, if a prospect selects another solution, you might mark this deal "closed-lost."

It’s important to study the number of closed-won and -lost deals. These metrics are closely tied to overall revenue numbers, but figuring out a rep’s ratio of closed-won to closed-lost deals can signal their overall efficiency, success, and fitness for the job.

10. Demo-to-trial ratio: If your SaaS requires a demo, carefully track how many of those presentations turn into trials — and how many of those trials turn into closed-won deals. If the conversion is low, address weaknesses in your demo, trial, or closing protocol.

SaaS selling has the potential to be an exciting, highly lucrative career. It requires dedication, patience, and training, but if you put in the time, you’ll reap the rewards. Think a career in SaaS is right for you?