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Understanding SaaS Sales Funnel Metrics

A Thought Leadership article we liked from OCSC Silver Sponsor Armanino LLP:

A Deep Dive Into SaaS Sales Funnel Metrics

In the highly competitive SaaS space, your organization’s success hinges upon your ability to understand, analyze and track business performance metrics and make fast business decisions in accordance with those metrics. 

A Deep Dive Into Saas Sales Funnel MetricsAs such, it’s essential to capture SaaS metrics beyond basic GAAP reporting and ensure that you’re properly calculating and interpreting those metrics. However, to get the clearest picture of your business, and learn where you can optimize it to drive profit, you also want to take sales funnel metrics into consideration.

SaaS companies typically think of their sales pipeline as a funnel, visualizing the customer journey from initial brand awareness through conversion to closed deals. Understanding the dynamics of your inbound and outbound sales funnels and their corresponding metrics allows you to analyze each step of your sales process to determine what’s working, what’s not working and what can be adjusted to produce better outcomes. This gives you actionable insights to effectively propel your sales strategies from the top of the funnel all the way through the finish line.

Inbound Sales Funnels

We typically look at two types of funnels that correspond with each respective sales strategy: inbound and outbound. A SaaS inbound sales funnel looks at a customer journey that begins with the prospective client reaching out to your organization about your product or service.

The below graphic shows the structure of an inbound sales funnel:

Marketing Spend → Demand Generated → Demos Requested → New Customer Bookings

Saas sales funnel metrics deep dive sales

At the start of your inbound sales funnel, some amount of marketing spend is devoted to acquiring lead sources that generate demand for your services (e.g., a paid Google ad drives traffic to your website, which is measured in clicks).

Then, some portion of this initial demand converts to prospective customers who request a demo of the product. At this stage, we can calculate our conversion rate, i.e., the percentage of prospective customers who move down the funnel from one stage to the next. Each step of the funnel has its own conversion rate worth tracking:

Conversion Rate (Click-to-Demo) = Prospects Requesting Demos ÷ Ad Clicks

Finally, some portion of these prospects will decide to sign up for the service. At this point, we are left with our new customers whose contracts represent our new customer bookings. Framing this within our growth equation, the sum of the ARR generated from these new customers represents the inbound portion of our total New ARR.

Outbound Sales Funnels

An outbound sales funnel looks at a customer’s journey, starting with outreach from a sales representative. It differs from an inbound funnel in two key ways:

  • The source of outbound demand starts with dedicated sales representatives actively seeking prospective customers, rather than...

Read the rest of this article at armaninollp.org...

Thanks for this article excerpt and its graphics to OCSC Silver Sponsor Armanino LLP.

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