You’ve got a killer product, a great ICP, and your teams are raring to go. You’re generating a ton of web traffic, but there’s a problem: your conversion rates aren’t as high as you’d like them to be. So what’s going on?
Many marketing teams - especially inexperienced ones - make traffic their number one priority. In other words: more clicks equals more sales, right? Well, not exactly.
SaaS businesses are complex machines. Not only are there dozens of variables when it comes to analyzing ‘traffic’ (consider organic traffic, referral traffic, unique visitors, return visitors, MQLs, SQLs…), all of which make it pretty tough to determine how valuable that traffic really is, but transforming visitors into paying customers is another thing entirely.
Did you know that the average conversion rate for SaaS companies across all industries is between just 3 and 5%?
This would suggest that Conversion Rate Optimization (or ‘CRO’) should be a top priority for your SaaS company. You want to be able to see exactly where, when, why, and how prospects convert into customers, and, more importantly, to optimize those processes.
That’s why we’ve compiled a go-to guide explaining the most important CRO metrics for SaaS you should be analyzing today. By getting to grips with everything from Customer Acquisition Cost to Churn Rate, you’ll be better placed to enhance your sales process and boost your SaaS sales for good.
Conversion Rate
Quite simply: the ‘conversion rate’ is the number of prospects (or ‘potential customers’) who end up completing a desired action (usually buying something, downloading something, or signing up to something). In this respect, it’s more or less the fundamental metric by which you can assess your marketing efforts’ effectiveness.
Calculating your conversion rate is actually pretty easy. Here’s the formula:
- Conversion rate = number of conversions divided by the total number of visitors
For example, if you had 1000 visitors and 100 of them converted, your conversion rate would be 10%.
Tips for improving your SaaS conversion rate
So how can you improve those stats? Well, there’s no magic wand, but by the steady application of a few key strategies, you can get there. Let’s take a look:
- Optimize landing pages with clear CTAs
- Simplify the signup or purchase process
- A/B test different page elements to identify what works best
- Use social proof and trust signals
Customer Acquisition Cost (CAC)
Okay, let’s talk money. How much does each new customer actually cost you to acquire? This is essentially what we mean when we talk about the ‘Customer Acquisition Cost’.
And you can see why it’s so important to keep an eye on this metric; just as you want a high conversion rate, you want a low CAC. The less you spend on each customer, the more revenue you make.
Here’s how to measure your Customer Acquisition Cost quickly:
- CAC = total marketing and sales expenses divided by the number of new customers acquired
Let’s say you spent $100,000 on sales and marketing last quarter and yielded 1,000 new customers. Your CAC would be $100.
In fact, the average CAC for B2B SaaS (for individual consumers across multiple industries) is around $213. But that number varies by industry.
Strategies for Reducing CAC
Reducing CAC is neither an art nor a science: it’s both. But there are a few strategies you can look into to get that figure down:
- Focus on high-performing marketing channels
- Enhance your inbound marketing strategies to attract organic traffic
- Improve your lead qualification process
Customer Lifetime Value (CLV)
It’s crucial for SaaS companies to look forward. You may have big dreams for expansion, but if you want to make them come true, you’re going to have to calculate how much revenue you can expect to generate.
That’s where CLV comes in. CLV does what you’d expect: it calculates how much revenue you can expect from a customer over the course of their lifetime with your company. So you can see why it’s so important for long-term planning and budgeting.
So how do you measure your Customer Lifetime Value? Here’s a handy formula:
- CLV = Average Revenue Per User (ARPU) times by Customer Lifetime (meaning how long they stick with you)
If your customer generates $500 in revenue per year and uses your service for five years, then your CLV would be $2,500. Of course, you’d have to subtract your CAC from that, too.
Increasing CLV through Customer Retention Strategies
Customer retention is at the heart of CLV; if you can’t retain customers year-on-year, the CLV drops to the revenue produced by a one-time purchase. Plus, you’d have to spend more to constantly acquire new customers.
Here are a few ways to increase retention rates:
- Enhance customer support
- Implement loyalty programs
- Regularly update your product to meet customer needs
Churn Rate
Just as you need to measure the predicted CLV generated by returning customers, you also need to look out for the number of customers who decide to call it a day. This is what we call your ‘Churn Rate’.
No one wants to lose customers, but it’s a simple fact that you will (the average SaaS churn rate is around 5%). So you need to know this if you want to forecast.
The calculation is as follows:
- Churn Rate = (number of customers lost divided by the total customers at the star of the period) times by 100
Imagine you started out with 200 customers and lost 25. Your Churn Rate would be 12.5%.
Techniques to Reduce Churn Rate
Ideally, your Churn Rate will be as low as possible. Luckily, there are a few tried-and-tested methods SaaS companies use to lower theirs, including:
- Identifying and addressing the reasons for customer churn through feedback
- Improving onboarding processes to ensure customers realize value quickly
- Providing proactive customer support
Average Revenue Per User (ARPU)
ARPU is a pretty simple - though crucial - metric to get a handle on. That’s because it’s just the amount of revenue each customer generates. But of course, that metric forms the backbone of your marketing efforts.
To calculate ARPU, do the following equation:
- ARPU = total revenue divided by the number of users
So, if your SaaS company is generating $500,000 in one quarter, with 3,000 customers, your ARPU would be a cool $167.
Strategies to Increase ARPU
It goes without saying that you want each customer to be generating as much revenue as possible. But how can you elevate that? Try this:
- Upsell and cross-sell additional features or services
- Introduce tiered pricing plans with value-added features
- Implement personalized marketing to target high-value users
Lead-to-Customer Rate
How many of your leads become paying customers? To measure this, we formulate the Lead-to-Customer Rate. By determining what percentage of leads convert, SaaS companies are better able to identify bottlenecks in their sales process and iron out sales funnel issues.
Optimizing Your Sales Funnel for Better Lead-to-Customer Rates
The main concern here isn’t necessarily how many leads you’re generating, but how many of those leads become customers. That said, when improving your Lead-to-Customer Rate, your focus should be on your sales funnel process:
- Streamline your lead qualification process
- Provide targeted content and nurturing for leads
- Ensure seamless handoff between marketing and sales teams
Activation Rate
Activation rates are a little harder to grasp than key KPIs like conversion rates. Essentially, what this metric measures is the percentage of people who reach an important ‘milestone’ in your pipeline (thereby becoming an ‘activated’ prospect).
For example, let’s say you email 1,000 prospects offering a free trial of your SaaS product. If 200 people sign up, your Activation Rate is 20%.
In SaaS, other milestones might include:
- Signing up to a newsletter
- Scheduling a meeting
- Requesting a demo
Effective Onboarding Practices to Boost Activation
In order to catch as many active prospects as possible, you need to provide measurable milestones - i.e., interactive elements - to engage them. Some proven strategies for improving Activation Rate in SaaS include:
- Providing in-app tutorials and guided tours
- Using personalized onboarding messages
- Offering incentives for completing onboarding tasks
Tools and Techniques for Measuring CRO Metrics
Now we have a good grasp of different CRO metrics used by SaaS companies to determine the power of their sales process, let’s take a look at some of the best ways to actually measure them.
Google Analytics
Super accessible and impressively diverse, Google Analytics remains a favorite for many SaaS companies - in fact, over 28 million websites use it for better customer insights.
In short, Google Analytics helps users track customer interactions with their websites. But Google’s list of metrics is anything but short: the software covers everything from Bounce Rates to Goal Completions and everything in-between.
Mixpanel
Another comprehensive engagement tool, Mixpanel measures countless key metrics across both web pages and mobile applications to give you the best data-driven insights possible. The software’s innovative ‘north star metrics’ are particularly useful for B2B SaaS companies looking to align their processes and drive engagement.
With over 43,000 users worldwide, Mixpanel is a true leader in the space.
Amplitude
Amplitude is another great all-in-one option for SaaS companies. With product analytics, web experimentation, and even AI capabilities, the platform is one of the B2B SaaS heavy-hitters. Along with Mixpanel, it makes up a huge share of the analytics market - and with all its cool features, it’s no wonder why.
Check out Amplitude’s pricing plans to see what works for you.
Techniques for Gathering and Analyzing Data
A great platform can seriously help when it comes to crunching numbers and finding new insights, but there are some techniques you’ll want to master if you want to feed them as much data as possible.
For example:
A/B Testing
Put simply: A/B testing is the process of comparing two versions of the same thing (i.e., a landing page or a marketing email) to see which performs better. By altering certain aspects like the CTA or design, you can better understand what exactly the magic ingredient behind your Conversion Rate is - crucial for scaling.
Heatmaps and Session Recordings
These are two great ways of visualizing customer behavior.
Heatmaps highlight aspects of behavior using colors, and session recordings literally track mouse movements and clicks to determine how customers browse your site. Both provide invaluable insights into what works and why.
Case Studies
So how useful is all of this in the real world? Well, we’re here to prove that this isn’t all just theory and that the correct application of CRO metrics in B2B SaaS companies can seriously enhance your revenue growth.
Founded in 2008, Dropbox has become a staple of file hosting worldwide. But this wasn’t always the case.
Initially, the platform suffered from a lengthy signup process which analysts soon realized was preventing conversions.
In response, Dropbox reduced the number of steps customers had to take in order to sign up and streamlined the process.
And it clearly worked: today, Dropbox has over 700 million users.
Slack wasn’t always the seamless communication tool we know and love today. Originally, users found it difficult to realize its value (remember those Activation Rates?)
In order to combat this, Slack introduced an intuitive onboarding experience that guided new users through the key features of the platform.
The hands-on approach empowered users to start using the platform instantly, thereby feeling its benefits early on. And the rest is history.
Wrapping Up
For SaaS companies competing in a crowded market, understanding your CRO metrics is crucial for making inroads and getting ahead. But the truth is that only 22% of businesses think they’re conversion rates are where they should be. By getting on top of yours, you can gain a long-term competitive advantage.
So don’t hang around; spend time researching these key CRO metrics, plus data-analysis tools for SaaS companies, and see for yourself just how much progress you can make.
Ultimately, we live in an age of big data. There’s no getting around it. Only by embracing data-driven insights and the power of CRO metrics will your B2B SaaS company be able to stand out and be heard. And by doing that, you're looking into a bright business future.
