SaaS companies are a big part of our book of business at Flawless Inbound. And having worked with 80+ B2B organizations across Canada and the US, we’ve learned a few things. One of those things is just how incredibly you can grow your revenue by making only incremental improvements to your sales and marketing pipeline.
Interested? I’m going to explain how making improvements of only 15% can result in doubled revenue.
How Is That SaaS Revenue Growth Possible?
As a SaaS company, your revenue is coming in the form of monthly recurring revenue. Let’s say $5,000. What you get from that customer is the MRR multiplied by the number of months they’re with you. You’ll have some number for an average customer lifetime, say two years. So their lifetime value is $5,000 x 24 = $120,000.
This number needs to support both the cost of goods sold, and the cost of acquiring the customer. Because to get a customer to that stage, you have to acquire and convert them. This means one-time expenditures for each customer.
This is going to be the cost of sales, marketing, advertising, and so on. If it takes six months of activities to convert each customer, those costs are going to start to stack up.
It’s in this acquisition stage that you have the potential to make small changes that have enormous impacts.
Improving the Deal Pipeline
Any deal pipeline will have customers in different stages of their journeys. Some have only just found out about your company and haven’t even made real contact yet. Some have clicked around you site and handed over an email. Some are in direct contact with salespeople. Some are actively trying to decide whether to purchase your service.
Each of these stages have a certain conversion rate. You might know that for every 100 people who land on your site, 25 will eventually fill in a form. Then you might know that 10 will demo your software, 5 will have a real conversation with a salesperson, 3 will have decided to buy a solution and compare you to other services, and 1 will become a customer.
In this case, your conversion rates for each stage are:
25% | 40% | 50% | 60% | 33.3%
Which when combined yield an overall 1% conversion rate.
Now let’s see how small, incremental improvements at each stage produce doubled revenue. If you can increase each of those conversion rates by just 15%, you get:
28.8% | 46% | 57.5% | 69% | 38.3%
And when you multiply those together to get your overall conversion rate, you’re looking at 2%.
Which means, all else equal, the average value of that original 100-person cohort hurtles up from $120,000 to $240,000.
How Do You Increase Those Conversion Rates?
Wait! Before you rush into burning more money in traditional media buy strategies, have a deep think about the metrics discussed above. What’s actually going to move people through these stages at greater rates?
Increasing those sales and marketing conversion rates is a job for a powerful sales and marketing partner. As such a partner, Flawless Inbound conducts monthly online workshops where we discuss and share our best practices from working with technology and SaaS companies. In fact, our very next webinar is specially focused on the technology sector (and if you’re reading in the future, the recording is still available at that link!).
They’re totally free! I encourage you to check our existing recordings out. As another next step, you may also want to read about our full SaaS strategy here.