Funnel optimization should be a priority for any SaaS business. While the temptation is to focus on the top of the funnel and the bottom, lead generation and better closing tactics won’t take you to the top of the pile.
What’s needed is an approach that looks right along the funnel, rather than obsessing over numbers at any one stage in isolation. Rather than tuning up one stage, you need to tune up the whole funnel.
There are two profitable ways to look at this.
Optimizing For Efficiency: The CAC Case For Early Lead Qualification
Customer Acquisition Cost is a recognized SaaS KPI. If you’re not measuring how much it costs you to acquire a customer, you really have no idea how much a customer is “worth” — because you don’t know how much of the revenue they represent has already been spent on signing them up. For reference, though, David Skok says, “I have seen this cost vary from around $400 to $5,000 per customer acquired, depending on the level of touch needed” — in a post ominously entitled, “The Startup Killer.”
Lead qualification is a sensible place to start. While any improvement in funnel efficiency will produce more deals and more money, the earlier that improvement takes place the lower your relative outgoings because you’re wasting less money chasing leads that will never convert.
The best person to do lead qualifying is your SDR. An SDR’s time and expertise come less expensive than an AE’s, and SDRs are the first point of contact. Additionally, the same clarity that lets SDRs select and offer value to great leads lets them disqualify ones that aren’t a good fit.
So why isn’t this obvious? Explained that way, it sure sounds like it.
Partly it’s because we suck at calculating CAC. The biggest way we’re messing this one up is by calculating CAC from immediate attribution. We got this customer from a PPC campaign, it cost this much, that’s our CAC. Nope.
Run the whole customer journey through a funnel that starts with marketing and ends with customer success, ie, profitability, and you’re seeing a really different CAC.
Lincoln Murphy calls this “fully loaded” CAC. He defines it this way:
“CAC includes everything it took to get that customer — the cost of advertising, marketing, sales, support during the Free Trial, on-boarding costs, etc. — and even includes the costs associated with attracting prospects (and non-prospects) that didn’t convert to a paying customer.”
When you total that figure up, it can be disconcerting. Understandably, businesses that get this far often opt to focus on CAC above everything. Often the emphasis will fall on reducing CAC, meaning businesses will strive to reduce human touchpoints and spend less per lead all the way through the funnel. But this tends to reduce conversions and eventually sales; leads requiring multiple touches and nurturing, or that have longer decision-making cycles, can be the best customers when they do buy. It’s a false economy, based on the natural urge to plug the leak where it seems like it’s occurring.
But the really important metric isn’t CAC. It’s CAC efficiency.
Once you get a handle on fully loaded CAC you need to contrast it with time to profitability, and lifetime value (LTV), to get a solid idea of funnel performance from end to end.
Then you know both how much you’re spending on customers, and how long you’re spending it. And you can measure it against how much they’re spending with you, and for how long.
If you’re losing money somewhere along the line, you should plug that leak. But tightening up your processes to achieve an efficient full-funnel approach to CAC will deliver the results that you won’t get by just trying to push CAC ever lower.
Optimizing To Remove Blockages: The Case For Stage By Stage Optimization
Optimizing a SaaS sales funnel for blockage points might start by bringing the whole funnel up and asking: where does it get narrow, fast? Visualize it or look at the numbers and track what happens at each identified stage, based on your pipeline milestones.
In an ideal world, your funnel would be parallel: everyone who became a lead would become a prospect and then a customer.
That’s clearly unrealistic.
Meanwhile, back in the real world, we’re really aiming for a funnel where numbers fall pretty consistently throughout the funnel, with the sharpest drop near the beginning where your SDRs are qualifying effectively to achieve greater CAC efficiency.
A funnel that shows a sharp drop in numbers somewhere after initial lead qualification likely has a “blockage.”
Blockages occur when you unwittingly make it difficult for leads to move on to the next stage of the funnel.
In some cases, the drop further along the funnel is caused by poor qualification at the beginning: your funnel numbers are plummeting when potential buyers realize what it is that you actually do, and bail.
But when it isn’t that, blockages are the points in your funnel where you ask people to do something without giving them any reason to.
That’s when your process generates objections, which then have to be handled, because the value of taking the next step isn’t self-evident to the prospect and the friction created by their own worries and concerns pulls them back. So optimizing your funnel for blockages is like pre-emptive objection handling: remove those sources of friction and you’ll get fewer objections that need handling.
We can use content to achieve this. Content can do more than “create awareness” – it’s one of the most powerful sales enablement tools out there. Use it to address prospects’ objections as well as their pain points: audit your funnel stage by stage and you can address those objections pre-emptively.
David Skok recalls using a form of sales-oriented content to set up meetings. If I tell you it was a paper book that reviewed and explained almost all business software then available for the PC, you’ll have some idea of how long ago this was. But the results aren’t old and tired at all: as Skok recalls, “I went from a 2-3% success rate in getting meetings to around 90%!”
The concept of blockage applies all along the funnel. That means it applies after purchase too. SaaS is unusual as a business model in that the majority of income is achieved after initial purchase. Retention needs to be viewed as part of the funnel, and it needs to be optimized along with the rest of the funnel in a coherent and unified way. When up to 70% of per-customer revenue is involved, it makes no sense to optimize the funnel up to initial purchase and then stop.
Image Source: Revenue after initial sale by Guy Nirpaz For Entrepreneurs
Optimizing funnels for post-purchase success means stitching customer success into sales, just like killing it at the top of the funnel means getting marketing and sales enablement to play well together. But it also means that sales ops and managers need to see that funnel as a whole.
When you’re optimizing the post-purchase or post-signup funnel for blockages, you’re looking for sudden drop-offs at transition points, the same as you are in the pre-purchase funnel. Typical places to find those include the transition from free trial user to paying customer, renewal, and scaling customers with rapid growth.
Again, rather than see these under the umbrella of ‘churn prevention’ we need to see them as part of the sales funnel and treat tactics here as part of end-to-end funnel optimization.
Optimizing SaaS funnels to produce lasting changes has to mean focusing on quantifiable business outcomes at every stage. But focus too tightly on one stage and you wind up in the situation where everyone hits their numbers at each stage and the outcome is still lackluster. Instead, you need an overview that keeps customer value and total funnel expenditure in mind.