SaaS stands for software as a service. It is a type of software hosted, secured, and managed by a single provider. It can be accessed online, easily customized, and is serviced and supported by the provider’s own product engineers and customer success team.
If you identify SaaS as something your mother told you never to give her -- think again. Software as a service, or SaaS, is software that’s accessed, managed, and used on the internet. It’s the present and future of software, and it requires a different type of selling.
This guide will teach you the basics of SaaS sales. From commission to sales cycles, models, and metrics, you’ll learn the different ways of selling this unique software and what you can expect from the job.
Table of Contents
- What is SaaS?
- What is SaaS Sales?
- SaaS Sales Salary
- SaaS Sales Commission
- SaaS Sales Cycle
- SaaS Sales Models
- SaaS Sales Metrics
Remember the days of unwrapping CD-ROMs, uploading them to your computer, and only having access to that software from your computer? Those days are gone. SaaS is hosted, secured, and updated by an outside vendor.
This means SaaS often yields lower entry costs than traditional software, easier upgrades, and better integrations. What's left is a more advanced, user-friendly, and evolving product.
SaaS sales is the process of selling web-based software to clients. Salespeople focus on acquiring new customers and upselling or retaining current clients.
Because SaaS is supported, maintained, and engineered by an external company, the price is usually high requiring a longer sales cycle and more touch points from Sales and Marketing before the customer is ready to buy.
Marketing nurtures each lead until they are “sales qualified.” Then, a salesperson follows up with the prospect to gauge next steps. Just because a lead is sales qualified doesn't mean they're ready to buy -- or ready for a demo.
SaaS salespeople must clearly communicate the benefits and features of their software. And it’s important to tailor each presentation to meet the needs of each prospect. Service and attention are key to getting the prospect to close, because SaaS reps are usually selling at a higher price.
Reps also must be well-versed in how the software works to demonstrate and troubleshoot the product during presentations.
Because SaaS can be so complex, it’s common to bring engineers, executives, or product marketers into some meetings to make a difficult sale. Knowing when to ask for help is another sign of a qualified SaaS rep.
What is the Average SaaS Sales Rep's Salary?
The average base salary for a SaaS salesperson is $51,040. Commission is usually added to the base pay and awarded when a salesperson meets or exceeds quota.
SaaS reps generally have a higher base pay than other salespeople because of the training, expertise, and high motivation they need to succeed.
Because it's necessary for SaaS reps to have a deep working knowledge of the software, product roadmap, and frequently asked questions, their base salary and commission is usually higher than reps in other verticals.
Here are three benchmark studies to illustrate the average salary for SaaS sales reps:
- In a 2017 study of more than 700,000 salaries, job aggregator Indeed calculated the national average base salary to be $62,881 for a SaaS account executive and $44,705 for an account representative.
- Workplace hub Glassdoor calculated the average base salary for a SaaS specialist to be between $34,613 and $53,000.
- And The Bridge Group, an inside sales consulting firm, calculated the average base salary for a SaaS inside sales rep to be $60,000 -- with on-target earnings of $118,000.
As with most sales jobs, commission is commonly added on top of the base salary and varies per individual compensation plans.
SaaS commission, like other sales verticals, is paid when a rep closes new business or renews existing accounts. It’s awarded based on monthly recurring revenue (MRR) or annual contract value (ACV).
Some organizations wait for new clients to submit payment before awarding commission. This model is meant to avoid paying commission on a customer that churns quickly or reneges on their agreement.
The accelerator model of commission means for every dollar a rep brings in over goal, their commission rate increases by a percentage point (i.e., if a salesperson attains 115% of goal, their commission rate increases by 15%).
Other organizations tier their commission rates. In this model, the first tier of compensation covers 100-110% attainment, the second tier covers 110-125% attainment, and the third tier covers 125% attainment and beyond. For those salespeople hitting the third tier, the President’s Club is often offered as a prize.
Some compensation packages won't disburse commission until a rep brings in enough revenue to cover their base salary and the cost of their benefits.
Once they've closed enough business to cover their cost, however, these reps usually receive commission at rates more than double those of a normal model.
SaaS sales cycles vary depending on price, customers, and product complexity. A product that’s $100/month will likely have a faster sales cycle than a product costing $50,000/year.
The more expensive your product is, the more stakeholders will involved which can lengthen your process by weeks or even months. Here are four additional factors that slow down SaaS sales cycles:
- New markets: If you’re selling to new markets, your sales cycle might be longer because your spending more time communicating your use case and value to potential clients. This will extend your sales cycle, but it’s crucial to educate new markets before selling to them.
- Enterprise business: Selling to enterprise-level companies increases the number of stakeholders needed to sign off and is usually accompanied by more legal and technical red tape.
- Complex software: Similarly, the more complex your software is, the longer your sales cycle is likely to be. In this case, it’s important to make sure the right prospects are in the room during your demo to champion your cause to less savvy colleagues.
- Free trials: Free trials can also affect SaaS sales cycles. If you offer a 30-day free trial, this could lengthen the sales cycle significantly.
Still not sure how long your sales cycle should be? Sales pro Matt Bertuzzi lists the following sales cycle averages for B2B SaaS businesses:
How Long is a SaaS Sales Cycle?
- 40.1 Days: < $5K:
- 62.2 Days: $5K-$10K
- 84.1 Days: $10K-$50K:
- 116.6 Days: $50K-$100K
- 169.6 Days: $100K+
- Overall average: 84.3 Days
If your sales cycle takes too long, consider cutting a free trial from 30 days to two weeks. Bring in a professional writer/storyteller to help you communicate your complex software offering in a more understandable way.
And work with your marketing team to educate new markets before conducting outreach. Lastly, if you know your sales cycle will be lengthy due to enterprise clients or other factors, build that time into your budget. No salesperson can perform well under unrealistic goals.
The proper sales model indicates how many salespeople you should hire, how you'll interact with your customers, who they are, and how you'll close their business.
It's crucial to choose the right model and know when your organization needs to evolve. Here are the three most common SaaS sales models.
SaaS Sales Models
- Transactional sales
- Enterprise sales
1. Customer self-service: This model works best when selling lower-priced SaaS at a high volume (i.e., Spotify subscriptions, a Medium membership, or a phone plan). It assumes your average selling price, or ASP, is low while allowing you to bring in significant revenue.
Freemium models and free trials are common strategies for attracting customers in the self-service model. Customer service is not comprehensive and this model often can’t support a full sales team. Instead, websites encourage users -- usually individuals or small teams -- to sign up online.
2. Transactional sales: Transactional selling is the most common and the most scalable of the three models. This software is typically sold to small and medium businesses over the phone and occasionally in person.
Since the cost associated with this level of software is generally higher, the buyer requires more personalized service to make a purchase, thus necessitating a sales team.
Software sold by the transactional model should also be customizable to service the needs of a variety of use cases. Contracts generally range in price and reps are empowered to provide discounts and share tiered pricing models.
These salespeople have a pipeline fueled by a marketing team, and they're required to undergo training, exhibit a comprehensive working knowledge of the product, and meet monthly or quarterly quotas.
3. Enterprise sales: This model is reserved for software sold at low volume and high price. These solutions are often full-scale, highly specialized, or cutting edge. Enterprise salespeople will regularly spend months working closely with prospects to answer questions, demo the software, and meet with executive stakeholders.
Enterprise sales is a popular choice for complex or niche SaaS benefiting larger companies or corporations with the budget to support the high cost of these solutions. Sales teams are often organized by territory and focus on a targeted set of prospects.
Because there are so many working parts to this sales model, reps work closely with product marketers and engineers to source the answers and information they need to close high-value deals.
Know your ASP: Here's a bonus tip for you: Know your ASP. A higher average selling price (ASP) means your prospect will expect inclusive customer service, a better business relationship, a signed contract, and invoicing. If you have a low ASP, it’s unlikely you can afford or need a sales team.
Before hiring your first salesperson or expanding your existing team, understand your average selling price and make an educated decision on when and who to hire.
Common SaaS Metrics
- Net Promoter Score
- Monthly Recurring Revenue
- Annual Recurring Revenue
- Sales Qualified Leads
- Lead Velocity Rate
- Revenue Per Lead
- Customer Acquisition Cost
- Closed Won/Lost
- Demo-to-Trial Ratio
SaaS salespeople are held to demanding metrics. But which one’s matter? Jason Lemkin, co-founder of two successful SaaS businesses, founder of the SaaStr Blog, and arguably the godfather of SaaS, warns, “Don’t obsess over sub metrics, but obsess over the key metrics that tie into your revenue growth.”
Here are a few key metrics SaaS salespeople should obsess over.
1. Churn: Your churn rate is the percentage at which you lose customers on an annual or yearly basis. To calculate churn, divide the number of customers you’ve lost by the number of customers you started with. It’s worth noting that a negative churn is a good thing -- meaning you gained more customers than you lost.
2. Net Promoter Score: Net Promoter Score (NPS) measures customer experience and predicts business growth. Users answer relevant questions using a 0-10 rating scale. For example, “How happy are you with [insert SaaS name]?”
A score between 0-6 would label your customer a “detractor” who's unhappy with your brand and could stunt growth with negative reviews or word of mouth. A score of 7-8 means your customer is “passive.” They’re satisfied with your product but might be vulnerable to competitive poaching.
And if a customer scores you between 9-10, you’ve got a “promoter” on your hands. This person is a loyal enthusiast, likely to be a continued customer and refer new business.
To calculate your NPS -- which ranges from -100 to 100 -- subtract your percentage of detractors from your percentage of promoters.
If you have a low NPS, it matters less how much business you’re bringing in, because your customers are likely churning at an alarming rate. A high NPS, however, signals satisfied customers and the potential for sustainable growth.
3. Monthly Recurring Revenue (MRR): This is the income your company knows will arrive every 30 days. A monthly fee is agreed upon in the contract between client and SaaS provider, and the amount is paid on or by a certain date.
4. Annual recurring revenue (ARR): This metric is often used by SaaS and other subscription-based businesses. The annual recurring revenue (ARR) represents the value of recurring revenue your client agrees to pay over or on an annual basis.
5. The number of sales qualified leads: A sales qualified lead (SQL) is a potential buyer who data indicates is ready to talk to a salesperson. This doesn’t mean they’re ready to buy, but they’ve taken a series of actions that predicts an inclination to learn more.
The definition of a qualified lead will differ depending on your solution, audience, and sales cycle. Salespeople often rely on IBM’s BANT system for identifying SQLs. BANT simply asks if your lead has the budget, authority, needs, and timeline to buy. If so, it’s time to reach out.
6. Lead velocity rate: How quickly are your leads growing month over month? Even if MRR growth is steady, this might only indicate how you’re doing in the moment, instead of forecasting future growth.
The lead velocity rate shows reps whether leads are coming in faster than revenue, which allows you to calculate growth, goals, and milestones further out.
7. Revenue per lead: By measuring the revenue each rep brings in per lead, you can estimate an accurate number of leads a rep can manager before productivity suffers. Look beyond the MRR and improve or maintain rep performance.
8. Customer acquisition cost: Divide the total cost of Sales and Marketing by the number of deals closed to learn your customer acquisition cost (CAC). This number will be lower for companies using a transactional sales model and higher for organizations focused on enterprise sales.
If your customer acquisition cost is too high, you might be scaling too quickly. If you have a low CAC, look at areas where you can invest in growth or increase revenue.
9. Closed won/lost: A deal is marked “closed-won” when a contract is signed or payment is rendered. Alternately, if a prospect selects another solution, you might mark this deal “closed-lost.”
It’s important to study the number of closed-won and -lost deals. These metrics are closely tied to overall revenue numbers, but figuring out a rep’s ratio of closed-won to closed-lost deals can signal their overall efficiency, success, and fitness for the job.
10. Demo-to-trial ratio: If your SaaS requires a demo, carefully track how many of those presentations turn into trials -- and how many of those trials turn into closed-won deals. If the conversion is low, address weaknesses in your demo, trial, or closing protocol.
SaaS selling has the potential to be an exciting, highly lucrative career. It requires dedication, patience, and training, but if you put in the time, you’ll reap the rewards. Think a career in SaaS is right for you?
Originally published Dec 12, 2017 8:30:00 AM, updated December 12 2017