It’s easy for early-stage SaaS to get caught up in the excitement of the sale. You feel under pressure to grow quickly so closing as many sales as possible is part of the deal.
But, are all of those sales a good decision? A good clue lies in your retention rates. If barely a few months later large numbers of those customers have cancelled their subscriptions, yet your product is well-designed and works exactly as it should, there’s a good chance that you’re closing the wrong deals.
You don’t want the growth of your SaaS to be derailed by high levels of churn, so how can you avoid closing bad deals?
Avoid Selling To The Wrong Customers
Not every prospect who crosses your path is going to be a good fit for your SaaS and that’s fine, but where SaaS can go wrong is by pursuing the close anyway for the sake of another sale.
Ideally, the customers you sell to should be those who will derive the best value from your product. Bad closing decisions can impact on your business in a number of different ways:
Impacts Of Closing The Wrong Deals
A sale for the sake of a sale might look good on your books in the short-term, but it just may lead to more negative long-term impacts on your business.
Extra support and training needs
The customer who is not deriving the best value from your product is immediately led down a path of confusion, frustration and complaints. They often expect instant support and will take up a lot of time with needs for training on how to best use the product.
This is one reason getting prospects to make the best use of your free trial should be a priority. Both them and you can very quickly tell if they’re going to be a good fit for your paid product. The customer who uses the free trial to the best of its potential, testing out features and getting some results from it, is one who is already sold on your product and will not require as much in the way of “closing.”
The wrong customer for your SaaS is not a happy customer, which means they are highly likely to leave. If you’re hemorrhaging clients quickly, pretty soon you find yourself in a position where large amounts of your revenue are going back into attracting new customers to replace the old ones, while your revenue targets end up becoming a distant and seemingly unattainable goal.
High churn rates are also not a good look if you’re hoping to get a decent valuation for your business or to attract investors for a funding round. Churn is a measure that all investors will look at, so you want to keep this as low as possible.
No one enjoys dealing with unhappy customers all the time. If your team is put in this position, it can very quickly take a toll on team morale and happiness. People usually want to strive to be successful, so having to deal with the issues that the wrong types of clients can bring in can really bring them down. It can put them in a hopeless situation where nothing they try is going to be successful.
Unhappy clients are complainers, and those who complain tend to tell their friends. And contacts. And total strangers. There are enough online forums discussing SaaS and online tools that an unhappy customer has plenty of outlets for venting, a frustrating fact when they weren’t the right fit for your product in the first place.
Sell Based On Value, Not Price
We’ve written previously about how engaging in a price war will not be a winning strategy for SaaS. If your method of selling is to land customers based on your pricing, this is not a strategy that helps demonstrate the value of your SaaS and really, it only leads to a race to the bottom.
SaaS pricing is one of the aspects that business owners find the most difficult to get their heads around, but as we’ve stated before, competitor pricing should not be a main input of your decision, so don’t let that become an issue with customers. The customer who is insistent on price is probably one who doesn’t fall into that “ideal customer” category anyway.
The best way to sell is to highlight the unique value that your SaaS can deliver for the client. Again, you should be encouraging them to use those free trials to maximum capacity so that they’re given a clear picture of how the product will work to deliver value for their business.
You could try talking to them by taking price out of the equation; with all other things being equal, is your product the one they love the best and can see themselves using and getting value from?
If, even after making use of your various features in a free trial, the customer still does not see unique value for them, they’re probably not a customer who you want to close a deal with anyway.
Avoid ‘ABC’ Sales Advice
We love our acronyms in the business world and there’s a particular piece of advice common in sales that should be avoided by SaaS: ‘ABC’ for “Always Be Closing.”
Lindsay Kolowich wrote a piece about this for Insight Squared that makes a lot of sense: if everything you do is geared towards closing a sale, then it suggests that if you don’t close a deal, everything leading up to it was a failure.
In the world of SaaS sales, relationship-building is key and any kind of ‘hard-sell’ techniques are more likely to get you thrown out the door. The focus should be more upon getting to know the customer, understanding their needs and being available to help if needed. If the sale is not closed this is not necessarily a failure; part of your relationship-building is about discovery. Is this person or business really a good fit for our product? If not, then failing to close was definitely not an overall failure.
Educate and Incentivize Staff
Are you still getting too many bad deals through? If your business is of a size that you have a sales team, then educating them on what to look for is a good place to start. This is going to start with you, the owner. If you don’t know what your ideal client looks like and how to speak to them, it’s a big ask of your sales team that they should.
Finding the right customers should be a priority for sales staff, and their metrics should be based on more than the immediate sale. Long term value and churn should come into the equation, too, if you want to ensure that they’re not just closing every sale they possibly can, regardless of suitability.
InsightSquared has more to say on making churn part of the accountability of sales staff:
“For sales reps – especially veteran ones who largely operate on autopilot – this ownership of the churn rate SaaS metric requires a mindset shift. They need to migrate their thinking from one of “Let’s sell software to every potential customer we can,” to one of “Let’s sell software to customers who truly need our product and will derive real value from actively using it.”
This also means that if you currently use incentives based on the immediate volume of business brought in, you’ll need to revisit that. Why would a salesperson think of long term value if their personal gain comes from every sale they make?
This can be countered by introducing some kind of long-term requirement to your incentives. For example, perhaps sales staff earn a bonus for clients who remain longer than a certain period of time, or who renew their contracts or subscriptions.
In any business it can be tempting just to sign on as many clients as possible and gun for rapid growth, but this is exactly how SaaS can end up with bad deals on their books.
Signing the wrong customers just for the sake of the sale is not a strategy that will help the long term success of your SaaS. The wrong customers end up unhappy, take up a lot of extra time and eventually add to high rates of churn.
If you’re hoping for investors or for a good valuation of your company, high churn rates are going to be a red flag that holds you back.
Instead, focus on bringing in the right customers who truly derive value from your business. Focus on relationship building and ensure that any sales staff are appropriately trained and incentivized. If you devote your time to closing only the right deals, your SaaS will be on a much better growth track.