Conversion rate is an important metric that SaaS marketers use to determine the performance of their marketing efforts. A high converting website or product ensures that your company is growing.
The higher the conversion rate, the more effective your marketing is and the more likely it is to generate revenue and profit.
However, it is unrealistic to expect a 100% conversion rate. The median conversion rate in the SaaS industry across all subcategories is 3.0%, whereas the top-performing category (apps & devices) has a 6.2% conversion rate.
So what makes a “good” SaaS conversion rate? It varies from industry to industry and depends on a variety of factors.
Let’s first understand how a conversion rate is defined.
A SaaS conversion rate may be defined as a metric that measures the number of conversions (i.e. the number of people who complete the desired action) across a variety of marketing channels such as paid search, email newsletters, and website landing pages.
The desired actions may be:
Conversion rate = Number of conversions/total number of visitors or enquiries of product
This formula will differ based on your business, your overall goals, and where you track your conversions.
SaaS firms measure conversion rate by the percentage of customers on trial who become paying subscribers. These firms mostly depend on paid search to drive traffic through click-through pages and form-fill pages. The conversion rates for form-fill pages, however, are very small.
Marketers determine the overall effectiveness of marketing campaigns by tracking the conversion rate of each channel, CTA, asset, and audience segment. With such data, marketers can optimize the elements of their marketing campaigns to achieve better conversion rates.
We cannot determine a single “good” SaaS conversion rate because it varies extensively across industry categories, businesses, and even goals. For example, paid conversion rates may be different from organic conversion rates.
The median SaaS conversion rates across seven industry subcategories in 2021 were:
Also, for the SaaS industry overall,
Nevertheless, to help you arrive at a “good” conversion rate for your SaaS marketing efforts, let’s look at the available data to see what the benchmarks are.
There are two categories of SaaS business models – low-touch and high-touch.
Low-touch SaaS models involve selling the SaaS product to prospects with minimal face-to-face interaction. E.g. Basecamp, Atlassian (creator of Trello, Jira, Confluence), and Unicorn Train.
High-touch SaaS models follow a more traditional approach to marketing and selling. E.g. Salesforce, Reachbird, AppDynamics
Since the sales process is different for each of these business models, their conversion rates also differ.
Often, SaaS firms use a combination of these approaches. They start with a low-touch business model and then move to a high-touch model to land larger contracts and expand their business. E.g. Dropbox, Periscope, Tableau.
Low-touch SaaS models track conversion rates from free trial to paying subscribers to measure success. There are three channels for free-to-paid in SaaS products:
Free trials with no credit card requirements
The product is offered on a trial basis without credit card information. Typically, it leads to higher sign-ups and, therefore, a higher number of leads.
But the conversion rate is not high: ~1% is satisfactory whereas 2%+ is a good rate.
Free trials with credit card registration requirements
The product is offered on a trial basis with credit card details required up front. It results in a smaller number of signups but more qualified leads. The trial-to-paid conversion rate is higher than that for free trials without credit card requirements.
A 40% conversion rate is considered the baseline, whereas a 60% conversion rate is excellent.
The product is offered for free but there are paid plans for advanced features and functions. Multi-billion dollar companies like Spotify, Slack, and Dropbox use the freemium acquisition model.
Conversion rates are generally low, in single digits, around 3%. An Insight Venture Partners article noted that typical freemium companies had conversion rates between 1% and 10%.
There are some exceptions, though.
SaaS firms employing high-touch business models tend to focus on benchmarks like MQL to opportunity and close rates. A majority of high-touch businesses sell to other businesses (B2B).
A six-step funnel is employed at B2B SaaS companies:
Typically, SaaS companies use the following definitions of these terms to work with:
Lead – A website visitor who has submitted contact information
MQL – A prospect from a firm that is a fit and has taken a desired action like opting in for a free trial, downloading a digital asset, or looking up a few key pages on the website. Ideally, 1/3rd of MQLs are converted to SQLs.
SQL – An SDR speaks to and qualifies a prospect from a firm that is interested and has the budget. The prospect also demonstrates a positive action like booking a meeting with an account executive (AE) through a salesperson. The average conversion rate from SQL to close is 20%, according to Brandon Pindulic, Founder of OpGen Media.
Opportunity – If the demo goes well and the prospect agrees to a contract, the SQL is converted into a sales opportunity.
We have laid out the conversion rate metrics for each step of the inbound and outbound marketing funnels:
1. Inbound marketing funnel
The average conversion rate from lead to closing is 0.05%.
2. Outbound marketing funnel
The average conversion rate from lead to closing is 0.03%.
No matter which SaaS model your company follows, improving your conversion rate begins with improving your website. Factors like vague messaging, ineffective communication of value proposition, cluttered layout, lack of SEO, or absence of a sense of urgency reduce your chances of getting high conversion rates. A content-driven SaaS SEO agency ensures sustainable growth of organic marketing and overall business.
Let’s see what steps we can take to improve conversion rates.
SaaS marketers can use the following conversion rate optimization tactics:
Short landing page copy (ideally under 250 words unless you have a sophisticated product) written at elementary school or middle school level correlates with higher conversion rates.
There are a few exceptions, of course, in industries like cybersecurity, infrastructure, and marketing where simplification of language does not noticeably increase conversions.
Instead of using pessimistic language to scare prospects into signing up for your product, use lively, value-focused language that creates anticipation and joy.
Focusing on the benefits is likely to increase conversion rates.
E.g. Instead of saying “avoid the hassles of…,” say “achieve efficiency by….”
Forms used to help visitors book demos or sign up for free trials are important for SaaS firms. They also serve as a source of leads to be further nurtured along the sales cycle.
Forms with one or two fields were found to generate higher conversion rates than forms with seven to nine fields. Unless you need a lot of information in the beginning, using a shorter form improves performance.
High-converting form pages are shown to have 200 words or lower. Although the readability level isn’t as important on form pages as on click-through pages, better results can be achieved by writing for a middle school audience.
Use the visitor information collected during signups to serve customized offers. You can enrich your leads with past data and on-site data and make your users feel valued.
Once you have more information about your user, you can customize other elements like CTAs, content, and flows. This increases the chances of trials converting to paid customers.
Use A/B testing and keep tabs on customer feedback to optimize free trials and track the percentage of people who drop off during the trial and at what point they’re leaving.
Focus on tracking actions that converted customers have in common, such as reading a particular blog post before paying for a subscription.
It’s important to measure and optimize SaaS conversion rates because a higher conversion rate leads to faster growth. The quality of the website and landing page(s) contributes to improving conversion rates.
You can maximize your conversion rate by trying the aforementioned tactics to see what works best for your target audience. Compare your performance with industry benchmarks to give you a sense of how you’re doing and where you need to improve.
Image Sources – Unbounce, Jelvix, SaaStock, Intellimize
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