Conversions are the lifeblood of your SaaS business.
However, many need help understanding what drives conversions and what even is a good conversion rate. Is there a standard benchmark for conversion rates? How do you keep optimizing your conversion rate to scale your business? These are some common questions SaaS businesses often have.
As a link-building and SaaS SEO agency, our services are geared towards helping businesses improve their conversion rate and grow effectively. The main reason why we created this guide is to provide answers to common SaaS conversion questions.
Let’s first explore what SaaS conversion rate means and why it’s so important for online businesses.
What we’ll cover:
What is a SaaS conversion rate?
Conversion rate is a critical SaaS metric, measuring the percentage of people who complete the desired action across various marketing channels, such as website landing pages, paid search, and email marketing.
For SaaS companies, this desired action is when a trial user goes to become a paid customer. It could also involve signing up for your free trial, downloading an ebook, renewing a product subscription, or requesting a product demo.
The general formula to calculate the conversion rate is:
This formula will differ depending on your goals, business, and how and where you track your conversions. You can even measure the conversion rate of each of your CTAs, channels, and audience segments to understand the effectiveness of your marketing efforts.
Based on all that, this metric gives you insight into your revenue, customer acquisition, and success of your paid marketing channels.
Five average pipeline conversion rates in SaaS
Pipeline conversion rates measure how many sales leads you can convert to the next stage. This helps you measure how effective your marketing efforts are for each stage in the marketing funnel and how you can improvise on the same.
1. Website to Free Account Sign Up
The first metric is about getting people to know more about your product and deciding to try it.
But when it comes to SaaS, people don’t want to invest in a product before knowing what it can do for them. A reason why free trials and freemiums are so popular in SaaS.
For example, Google Workspace offers you a free 15 GB drive space for free (freemium). You must upgrade your plan if you need more space and features.
On the other hand, apps like Shopify offer you a free trial of 14 days.
The industry average conversion rate for websites to free account sign-up is generally 2-5%, whereas the top-performing SaaS businesses often aim at a rate higher than 10%.
2. Free Account to Activated User
Many users signed up for your free trial. That’s great news! But only a handful of them goes on to buy the paid version. Why is that? One reason could be that they hardly use the free trial in a way that provides value to them.
The free account to activated users seeks to measure the number of users that take meaningful actions within the product and realize value from it.
If this rate is low, users will inevitably churn instead of moving on to the next stage of your funnel.
This activation point varies for different SaaS products, so it’s difficult to provide an industry benchmark for the same.
3. Free Account to Paid Conversion
Also known as the trial conversion rate, free account to paid conversion happens when a user first pays for the subscription after using your product during the free trial.
Here’s how to calculate it:
This conversion rate varies depending on the length and type of the trial. While this rate generally falls between 25 to 60%, lower numbers don’t necessarily indicate a problem for your SaaS business.
Instead, compare your numbers to your previous records and try to increase the same.
4. Activated User to Paid Conversion
This rate shows you how many users are motivated to sign up for the paid version of your product because they are getting value from it.
Let’s understand with an example. Suppose you have a project management tool. You define a user adding two projects to the free account as the activation moment. When the user performs that action and then pays for the subscription, the activated user-to-paid conversion rate denotes that.
There’s no set benchmark for this rate, as it depends on your activation moment and how long it takes for the user to reach that stage.
5. Customer Churn Rate
While you may be getting new users, retaining your existing users is as important when it comes to SaaS. Customer churn rate measures the number of customers who cancel their subscriptions for a given period.
A good annual churn rate is considered to be 5-7%. You might also want to measure the churn rate for different segments. For example, losing customers paying for the premium plan would hurt your business more than those paying for the basic plan.
If you’re facing a higher-than-average churn rate, delve deep and find out the reason behind it. It could be because of a clumsy product experience, navigation problems, not getting access to some features, etc.
Seven tips and tactics to improve SaaS conversion rates
Whether your SaaS conversion rate is low or above average, you should always try to improve it. Here are seven strategies to get more people to try your product and eventually become paying customers.
1. Attract qualified traffic
Even after putting all the hard work into creating the perfect landing pages and onboarding experience, you fail to achieve a good conversion rate. Ever wondered why? One reason is that you’re sending low-quality or unqualified lead flow to these pages.
The key, after all, is not only to get more traffic but to get relevant traffic. Three ways to do that are:
- Identify your ideal customers. Once you do that, delve deep into where these customers look for solutions and how you can make your offering attractive.
- Create quality content keeping in mind the keywords customers search for and the solutions they are looking for. Here’s how Todoist creates blogs centered around their tool but with a focus on solving their customer’s problems.
- Make use of paid search along with inbound methods to access relevant leads with a high chance of converting.
You should also use Google Analytics and other website insight tools that let you monitor and track the behavior of on-site traffic and whether people are staying on for a long time and clicking on videos and multiple links. This shows you whether your SaaS business is attracting the right kind of traffic or not.
2. Simplify the sign-up flow
Removing friction from your sign-up flow is how you encourage users to continue with your product. But what does removing friction exactly mean? Let’s find out.
- Lesser number of steps to complete the flow
- Fewer fields to fill
Let’s take Airtable’s sign-up flow as an example to understand how you can create simplified and effective experiences.
The first page asks for simple details like name, email, and password. Within a minute or two, the user can enter these details and reach the next stage.
After logging in, they ask for additional details to personalize your onboarding experience. It’s important to note that while they ask for more details, they limit the fields to just 4 with drop-down options from which the user can easily choose.
Their signup flow and UI are so simple that the user can easily start utilizing the free tool and reach the activation stage. How does this help? Airtable can get more signups, reach the activation stage at their own pace and get users to navigate the tool easily, and find value on their own.
3. Use lead magnets
According to Marketo, 96% of visitors that visit your website are not ready to buy. But they are willing to provide their contact details in exchange for some valuable content.
Lead magnets can be a great avenue to expand your lead sources, build your email list, personalize the content, and turn them into a paying customer.
These lead magnets could be anything from a PDF, checklist, webinar, to an ebook.
Here are five simple rules you should follow while creating lead magnets:
- Solve a real problem with your content. You should know your target audience well enough to know their pain points and how you could help solve them.
- Be specific. What will you give them in return? For example, will they be able to access the entire cheatsheet, or will you provide them with real-life case studies?
- Should be instantly accessible. People love instant gratification, so you should aim to provide them with the content right after they provide their email addresses.
- Keep your promise. If you make use of words such as “guaranteed to give you results,” make sure your content actually delivers those results; otherwise, your prospects will end up disgruntled.
- Show your expertise. To better convert, make sure that the lead magnet demonstrates your SaaS business’s expertise.
Here’s how SmartAdvocate used this lead magnet which achieved an 80% conversion rate.
4. Nurture leads with email
Email marketing can greatly lower your customer acquisition cost and increase your SaaS conversion rate.
To succeed with SaaS email marketing, you need to laser-focus on your target audience, personalize the content, have a specific purpose in mind, create attention-grabbing headlines, and include a clear CTA.
You can use promotional emails, welcome emails, newsletter emails, new updates or feature launch emails, and so on, as types of lead nurturing emails
Here’s how Wix.com incentivizes users to upgrade their plan at a discount.
Note that they use a single CTA in the entire email, and the visual makes the email’s message much more effective.
With email marketing, you can A/B test your emails often to know which kinds of emails are hitting the mark and how to replicate those elements for your other campaigns. Some of the metrics you should be measuring are the open rate, conversion rate, click-through rate, and unsubscribe rate.
5. Measure & track activation
It was found that if you increase activation by 25%, you can see a 34% rise in MRR over a period of 12 months.
Alternatively, if your users are not engaged with your product, they’re bound to churn. To avoid that and improve your SaaS conversion rate, you must regularly track and measure user activation and engagement.
To measure the activation rate, you need to define an in-app event that has to take place for a particular user segment to receive value from the product. For example, this could be importing all the project data to your software and then using your features to manage the project.
After that, you must keep track of the number of users that complete this event in a given period.
After calculating the activation rate for each segment, you can understand user behavior and how you can make in-app changes to push more users to reach that activation event.
Some of the most important activation metrics for a SaaS business are the visitor-to-sign-up rate, feature adoption rate, trial-to-paid conversion rate, and the ratio of DAU (Daily Active Users) to MAU (Monthly Active Users)
6. Activate your users
Instead of waiting for the users to reach the activation moment, you can use certain techniques to guide them through it. Here are four techniques for the same:
Checklists are step-by-step guides where you can instruct users on steps to achieve specific activation goals.
These checklists are a great way to make your product less complex for the users and increase conversion rates. Here’s an in-app checklist example from Loom.
Most SaaS tools guide users with an onboarding walkthrough where users complete each step in the activation funnel. Completing one action during this walkthrough triggers help for the next step.
These walkthroughs are unique because they are created keeping the target segment in mind. For example, if you are dealing with an email marketing tool, you can create these onboarding walkthroughs for different segments like agencies, freelancers, etc.
Many users might be comfortable using and navigating your tool even if they are using it for the first time. But for those who are not that tech-savvy, you can provide in-app messaging and support features like chatbots, help center widgets, and micro videos.
Miro provides its users with in-app guides where they share everything from features, use cases, and technical support.
Email funnel bumps
When users have signed up for a free trial but have stopped using your product for some reason, you might want to create an email funnel where you gently nudge them toward completing the next step in your app with email bumps.
Here’s how Monday.com sends users a short email to continue their free trial.
Your pricing page can be a key point in lead conversion and making a meaningful impact on your SaaS conversion rate. Here are four best practices you should follow to optimize your conversion rate:
- Keep the pricing options limited to a few. Here’s an example from Aura.
- Show each pricing tier's features and how the pricing tiers differ. Here’s how SmartTask does that.
- Promote annual subscriptions. For example, Squarespace keeps the annual pricing plan as default on their page.
- Use meaningful and actionable CTAs. For example, you can use time-oriented words like “Limited time deal” to create a sense of urgency.
The different pricing methods that SaaS tools generally offer their users are:
- Free trial: Most tools offer a 7-day or 14-day trial period where users can use the tool and its features for free before committing to it.
- Freemium: Here, some of the features are offered for free while the premium features are charged at a price.
Whichever pricing structure you adopt for your SaaS business, ensure you don’t keep anything hidden. This only makes the visitor take more effort and ultimately results in low conversions.
SaaS conversion is the ultimate goal of any SaaS business. To continuously improvise your SaaS conversion rates, you need to regularly track all the important metrics and how changes to your tool affect these metrics.
You can also follow the seven strategies above to devise a conversion optimization strategy for your business. Make sure that when you test a strategy, you keep all the other variables constant so you can know the correct impact of that strategy.
If you need help with optimizing your conversions, MADX is here to help you out. Take a look at the results we have achieved for our SaaS clients.