If you want to generate more revenue for your business, you need to increase the lifetime value of your customers. That means understanding and pre-empting their needs. In the words of Steve Jobs, “Get closer than ever to your customers. So close that you tell them what they need well before they realize it themselves.”

In this guide, I’m going to show you how to apply this logic to design a marketing funnel for a Software as a Service (SaaS) business. We’ll cover important terms you need to be aware of and concepts that you can apply directly to your business. Let’s start at the beginning. What is a SaaS business?

A SaaS business is a company that sells a digital product in exchange for a monthly subscription. There are many such companies out there, Hubspot for example is a well-known service that falls under the B2B SaaS umbrella. Other businesses that sell their services as SaaS includes Glip – a workplace communication tool and Duolingo, a loved language learning app.

What is a SaaS Marketing Funnel?

A SaaS marketing funnel follows the path of your customer journey. As you can see from our illustration, every customer goes through a sales process that is intended to increase the odds of them signing up to your business.

At the top of the funnel, you might have a paid advertising campaign to make people aware of your software or service. After which, you can run a webinar to get them to sign up. The webinar may be followed with an email campaign to onboard a customer and get them using the platform.

As you can see, the further the customer moves along the funnel, the more they learn about your business. The steps, therefore, follows from attention to interest (generated by your email campaigns), to desire, and ultimately outcomes into action – and dollars for your business.

Every marketing function that you use to gain, influence, and retain your customers are included in this funnel. You will use different marketing tools along the journey.

The ideal endpoint for your funnel is a customer referral.

Losing customers at the end of the funnel, something which is known as your rate of churn, can kill your business. You want to keep your customers paying a monthly subscription, for as long as possible, for your business to grow and prosper.

How Do You Know Your SaaS Marketing Funnel is Working?

To grow your SaaS company, you need to know how well their sales and marketing techniques are working. To do this, you need to define and set Key Performance Indicators to track.

If there are blockages in the sales funnel, then it stands to reason that you are not acquiring (or retaining) as many customers as you could. When you are in a position to identify those problems, you can work on a solution that will improve an aspect of your SaaS funnel.

For example; customers may subscribe to your free trial, but fail to actually take out a monthly paid commitment. To resolve this issue you would need to identify the pain points in the onboarding process that cause potential customers to leave.

There are various common KPI used for SaaS. They come with funny acronyms like CAC, and CLV. In the section below we’ll cover some of these terms and discuss why they are important.

How to Measure the Cost of Gaining New Customers and their Lifetime Value

The calculation of Customer Acquisition Cost (CAC) involves finding out how effective your marketing spend relates to the number of customers acquired. To find the CAC for a business, you need to divide marketing expenses by the number of customers you acquired. The figure you get is your CAC.

CAC is almost always used to determine a return on investment in exchange for marketing costs. You can reduce the CAC by improving the conversion rate or your marketing spend.

Improving the conversion rate across your funnel can involve:

  • Improved targeting for Pay Per Click advertising
  • Targeting the correct keywords, so you get free traffic from Google
  • Improving the design of your sales page
  • Creating an email marketing series to onboard customers

Customer Lifetime Value (CLV) is another KPI you should track. It is closely related to CAC.

Whereas CAC helps us find the right balance between spending resources and obtaining customers, CLV helps you to maintain customers effectively over the long term.

You can calculate your CLV by subtracting the customer acquisition cost from the total customer revenue for a set time period (usually in years). The resulting figure is your CLV.

The Importance of Customer Retention

Two additional metrics that are important when it comes to optimizing your sales funnel are your Monthly Recurring Revenue (MRR) and Customer Retention Rate (CRR). The first term covers how well your business is performing month-to-month. The second term refers to how many customers you kept in the process.

To calculate MRR, you need the Average Revenue per Account (sometimes referred to as average revenue by user). APRA represents the average income you receive from your customers per month. If you multiply this figure with the total number of customers, you will get an idea of how much your customer base grows every month.

MRR = ARPA * Total # of Customers

Ideally, your MRR will increase every month. If it does, then this shows that your business is growing steadily. An increasing customer base would be a sure sign that your SaaS funnel is working well.

Together with monthly growth, customer retention also indicates the efficiency of your marketing efforts. Similarly, high customer retention shows people are getting value from your product.

5 Tips for Optimizing Your SaaS Marketing

The metrics above are a way of monitoring how well your SaaS funnel is converting. When you have identified a problem, then you will need to solve it. Here are a few tips to help you do this.

Make Sure Your Upsell Always Adds Value

Consumers want value. One of the best ways to achieve that is to personalize the customer experience. The Australian company Canva, provide a good example of how to do this.

When customers sign up to use their online design tool, they are asked what their role is. A customer then receives designs directly related to their interests. In this way, Canva provides additional value to a customer. This extra support helps with the customer onboarding process.

The Importance of Clear Sales Copy

When communicating with your customer, whether that is through your blog, email, or on the sales page, you must be understood. You can build on this by making your copy humorous, serious, or corporate; it’s fundamentally your decision.

However, if your customer does not understand what you are offering, and most importantly, the value proposition of your product, they will not become customers. Keep this top of your mind at all times.

Use Multiple Channels to Connect with Your Customers

The quickest way to develop a relationship with your audience is by communicating with them across multiple channels. To do this effectively, you need to understand where your audience is most active.

You can increase the number of channels that you target people on incrementally. For example, you might first communicate with a person by email. You can then build on this by getting them to follow you on social media, or you could follow them around the net with Pay Per Click retargeting ads.

Avoid an Over Complicated Sales Funnel

Another critical ingredient to the success of your marketing efforts is the simplicity of the funnel. Too many complicated processes and procedures can make a sales funnel unnecessarily hard to manage.

Keep your funnel simple to start with and add complexity onto it based on performance. This way, you can ensure the fundamentals of your funnel operate effectively first. After all, everything else is based on your core funnel working effectively.

The Take-Aways

In this guide to a SaaS marketing funnel, we first looked at the basic principles and then covered some of the essential KPI you need to track. We then discussed strategies you can implement to improve conversions across your sales funnel.

Continually monitoring the conversion rate across your funnel is essential to the growth of your business. When these metrics prove that there are blockages in the funnel process, it is necessary to make adjustments. Always keep in mind your objective is to create a useful product that benefits your customers. Everything else is a result of this goal.

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