Introduction – what is SaaS?

Software As A Service, commonly referred to as “SaaS,” is a method of delivering applications over the internet. The user (usually a company) does not need to invest in software, and the provider manages all aspects of the service – access, security, and performance.

These services are usually sold or licensed against a monthly or annual fee.

What is a “sales funnel”?

A sales funnel is a series of actions or events that a user goes through before completing a product or service purchase. A sales funnel helps the marketer/seller track and optimize the buyer journey or sales function to maximize sales.

A sales funnel is important for every business present on the web or have a digital customer acquisition and conversion process. The sheer clutter on the internet makes it imperative for companies to have a well-designed sales funnel that attracts, engages, and converts lead into recurring customers.

Sales funnels for SaaS

The SaaS market today is over-saturated. SaaS buyers today have several options to choose from, and products and services are fighting for audiences and bigger shares of the market.

Although there is an urgency to convert leads to customers, the SaaS customer cannot be hurried or pushed into a purchase. The entire buyer journey must be managed carefully, and the customer must be constructively engaged at every stage of the process. Therefore, it is important to ensure that the entire journey from lead to conversion is managed through a formal process. Hence, the sales funnel!

There is no “standard SaaS Sales Funnel” – each company must build a customized funnel based on its position in the SaaS business. The typical stages of a SaaS business are as follows:

1st phase: The start of the business, where the company establishes a product-market fit.

2nd phase: The product-market fit has been established, and the company builds and implements a scalable system that others can use.

3rd phase: The product and market are ready; the system and process have been proved to work, and the company can focus on customer acquisition and sales.

For a SaaS sales funnel to be effective, the company must build its Funnel in the 1st phase itself so that the sales process can match the company’s growth.

Steps to build a SaaS sales funnel

The SaaS sales funnel structure depends on the sales strategy adopted by the company – is it selling directly to the end customer or is it selling through channel partners?

The following three steps, however, should be followed by all companies operating in the SaaS space to build a relevant and scalable sales funnel:

1. Identify the right prospects (customers)
   1. The “ideal customer persona” is the most important starting point for the SaaS sales funnel.
   2. Unless the company knows who its customers are, it cannot build a sales funnel that responds to the needs of those customers.
2. Design the sales message (or “pitch”)
   1. What is the business problem that the product or service is designed to solve?
   2. The sales message should combine knowledge of the business problem and awareness of how the product or service solves that problem.
3. Generate leads
   1. Once the ideal customers are identified and the relevant sales pitch finalized, the company has to start generating leads – draw in potential customers.
   2. There are two ways of generating leads: Inbound (where the potential customer contacts the company) and Outbound (where the company reaches out to potential customers).
      1. Products and services that are aimed at smaller companies and are relatively cheaper to buy usually work with inbound lead generation.
      2. Products and services that target mid-size or large organizations, or have more expensive offers, tend to use outbound lead generation through an “account-based marketing” approach.

Graphically we can present these steps as follows:

SaaS Sales Funnel Steps or Stages

Once these steps are in place, the company can start building its own SaaS sales funnel, using the AIDA process of Awareness, Interest, Desire and Action stages.

A typical SaaS sales funnel has three stages:

1. Top Of The Funnel (or TOFU)
2. Middle Of The Funnel (or MOFU)
3. Bottom Of The Funnel (or BOFU)

Let us examine each of these stages.

1. Top Of The Funnel (TOFU)
   1. Here, the customer is learning about their problem and is trying to find a solution.
   2. The sales effort here must be to drive awareness of the company and position it as an expert in the area that the customer is searching.
   3. Examples of tools to be used here include developing lead magnets, how-to guides, blog posts and videos.
   4. It is important to remember that the customer is still searching for information at this stage and is not yet ready to buy.
2. Middle Of The Funnel (MOFU)
   1. This is the consideration or interest stage of the process.
   2. The customer has identified their problem and is actively searching for a solution.
   3. The customer has also identified different potential solutions and is examining the best option.
   4. At this stage, the potential customer also does research on the seller.
   5. The sales team must engage the customer constructively at this stage, to determine and explain how their product or service is the best solution to the customer’s problem.
   6. Videos, case studies and product presentations are useful tools at this stage.
3. Bottom Of The Funnel (BOFU)
   1. This is the action phase of the process.
   2. The lead has been converted into a potential customer and is ready to take a decision.
   3. Customization of the product or service to fit specific customer requirements, budgets and scalability requirements is important at this stage to close the sale.

Graphically, a SaaS sales funnel can be visualized as under:

Image source: https://www.walnut.io/post/how-to-build-a-sales-funnel-for-b2b-saas

SaaS Sales Funnel Metrics

Once the sales funnel has been designed and implemented, the company must start evaluating and measuring success and leakage rates at each stage of the funnel. A company can use the following to drive maximum success rates at each stage:

1. Top OF The Funnel: Create compelling user experience stories, share interactive product or service demo links.
2. Middle Of The Funnel: Develop and present customized product or service demos, collect insights on how the prospect is using the demo to finetune the final offering.
3. Bottom Of The Funnel: Use the insights and analytics collected during the MOFU stage to optimize the product or service offering.

The company should also track the following metrics to determine the success rate of its SaaS funnel:

1. LTT: Lead To Trial conversion
2. TTS: Trial To Sale conversion
3. Churn: number of customers dropping out of the funnel
4. LTV: Lifetime Value of the customer
5. MRR: Monthly Recurring Revenue
6. ARR: Annual Recurring Revenue
7. CAC: Customer Acquisition Cost

The metrics can also be visualized as below:

Image source: https://www.pipedrive.com/en/blog/sales-funnel-templates

SaaS Sales Funnel Examples

As we said earlier, there is no “one size fits all” type of SAAS sales funnel. Funnels can vary depending on the industry, product or service offered or the structure of the company.

There are certain industries which use SaaS more than others and their sales funnels can be considered models for use:

1. Business Consulting Funnel: This is primarily a B2B service for managing or guiding a function or department of an organization. Awareness and Education are the main drivers of this type of funnel.
2. Agent / Broker Funnel: This could be a B2B or B2C service which presents multiple options to multiple customers. Awareness, Interest and Request for Quotes are key elements of this type of funnel.
3. E-Commerce Funnel: The simplest funnel, and usually a B2C service. Customers decide to buy on their own and do not need specialized help or guidance. Awareness and Push To Purchase are the main factors in this funnel.

SaaS Sales Funnel Template

There could be two main templates of SAAS Sales Funnels, depending on the complexity of the product or service and the sales process followed. These are:

1. Complex Funnel, which has six main stages covering the entire funnel:
   1. Push traffic
   2. Lead magnet development
   3. Nurturing prospects or leads
   4. Engaging the potential customer
   5. Developing interest and decision to buy
   6. Assisted Close with the help of trained sales teams
   7. After the last stage of Assisted Close, the company should also include the following stages in the funnel to retain and reward customers and get more business:
      1. Onboard the customer through a signup or purchase agreement.
      2. Referrals by existing customers to bring in new customers.
      3. Upsell to get the customer to buy a higher priced product or service.
2. Simple Funnel, which has just three stages in the entire funnel:
   1. Push traffic to learn more about the product or service
   2. Offer a free trial
   3. Self-Close in which the customer decides to buy or not without the intervention of the company’s sales team

Graphically, this can be represented as follows:

Image source: https://www.klozers.com/saas-sales-funnel/

Conclusion

A company operating in the SaaS space needs a well-defined Sales Funnel Strategy to ensure it attracts, engages, converts and retains customers.

Therefore, the most important goals of a properly designed SaaS Sales funnel are:

1. Provide great value to potential customers
2. Reduce customer acquisition cost (CAC)
3. Decrease churn and expand the customer lifetime value (CLV)