One of the most disappointing situations for a SaaS business owner is to create a fantastic product and to create an excellent marketing campaign but then not see the results come in. It’s even more frustrating when you have got the traffic coming into your site but still no new sales. Conversion rates are one of the most important metrics to be aware of and to work on. We are going to cover the why and the how!
What Is a Conversion Rate?
A conversion rate is the number of visitors that visit your site that actually convert into a paying customer. The simplest way to calculate your conversion rate is to divide the total number of visitors to your site in a period of time by the number of new clients acquired in the same time period.
If you have 1000 visitors in a month and 80 new subscribers, your conversion rate will be 4% (1000/80).
There are other ways to calculate your conversion rate, depending on the type of product you offer. Some companies prefer to calculate the conversion rate at every stage of the sales funnel to better see where they should focus their resources. For example, if you have a high conversion rate at the lead’s stage, but then it significantly drops at the closing stage, it indicates a problem with clients seeing the full value of your product.
How else can you calculate the conversion rate?
Here are three conversion rate formulas to use:
For some businesses, a conversion rate helps measure the number of purchases; others measure signups for mailing lists. A SaaS company often concentrates on the number of people who sign up for a free trial against those that convert to a paid subscription.
What Is the Aim of a Free Trial?
It sounds like a stupid question—a free trial is an opportunity for a customer to try the product without making any commitments. Looking at it this way doesn’t give it nearly enough importance!
A free trial is your opportunity to show the customer that they can’t live without your product. While this sounds somewhat over the top, at the bare minimum, it is a chance for the customer to see exactly how the product will save them time and money. When a free trial ends, there should be no doubt about the need to sign up for the product.
The Most Common Types of Free Trial Periods Offered by SaaS Companies
Before choosing a specific type of free trial for your SaaS product, you should consider your audience, type of customer, and business model. Some types of free trial periods are better suited to particular products. Let’s take a look at the advantages and disadvantages of each:
The freemium trial
This isn’t a trial period but more of a basic package. If you look at companies like Dropbox and Skype, they both have a minimum product that allows people to use the services for free, but if they want any advanced features, customers have to sign up for one of the paid subscriptions. Users who sign up or the Freemium Skype account are able to test the ease of use, quality of the calls, and some features before deciding if they will benefit from a paid package.
Freemium accounts can be frustrating for some users, and it almost forces them to sign up for a paid package. This doesn’t mean that freemiums aren’t a huge success. Spotify went from 30 million subscribers to 70 million paying subscribers in less than two years. So, the ads and limited songs in the freemium version encouraged a huge number of new subscribers but also some negative feedback. There is also the chance that your freemium customers never upgrade to a paid version.
Free trial without providing a credit card
This type of trial gives the customers more features to explore so they will get a better understanding of the advantages for their business. Those that find a genuine need for your product will sign up. It is a good way to get a high number of signups. Now it is down to the quality of your offer to convert them to paying customers.
This is often the favorite type of free trial among customers because there is less risk and pressure to commit. At the same time, you can see how this may not improve your conversion rates with customers simply saying no thanks after the trial period is over if they can’t see its value.
Free trial with a credit card
We have already established that you may get fewer signups when a customer has to add their credit card details, but it is the best solution for SaaS companies that need to increase their conversion rate for paying customers. They still have a period of time when they aren’t charged, but the payment automatically begins when the trial period is over. This is often the most popular choice for SaaS companies because of the business model — just take Microsoft Office 365 as a clear example.
For a free trial with a credit card to be successful, it is critical that you are completely transparent with your offer and your client knows how to cancel during the trial period. Making the cancellation process difficult will only have a negative impact on your reputation.
Conversion Rate Benchmarks
The following numbers are in no way set in stone as there are still other things to consider. Nevertheless, they will give you a good idea of what you should be aiming for:
- Freemium trials- Dropbox has a conversion rate from freemium to paid of 4%. Slack, at the higher end, has a conversion rate of 30%. This is the largest difference in conversion rate benchmarks often because of the differences in products and what is included in freemium.
- Free trials without a credit card- The benchmark here is between 8-10%; however, this could be closer to 15% for SaaS business. Netflix was able to get its conversion rate up to around 33%.
- Free trials with credit cards - 66% of SaaS businesses reported a conversion rate of approximately 24%. This looks much more attractive than the 4% conversion rate for Dropbox, but this still means that around three out of four customers who hand over their credit card details do not become paying customers.
How to Improve Your SaaS Conversion Rate
The first thing to do is not to panic. It’s easy to look at Spotify, Netflix, and Dropbox’s conversion rates and wonder why you aren’t reaching the same benchmarks. It’s silly to waste time comparing your product to others when you should be looking at how to improve your own conversion rate. Here are some steps for you to take:
Understand your sales funnel
As we mentioned in the beginning, you need to know which stages of your sales funnel is letting your conversion rate down. Perhaps you need to gain more traffic; maybe you need to make changes to your trial period.
At this stage, you should also be looking at who your target audience is so that you can turn your attention to those leads who are more likely to generate long-term income. You can do this by monitoring your site traffic, referrals, and customer behavior. Using Google Analytics will provide you with some of the right insights.
Optimize your site
This might be a lengthy process, but the results are often outstanding. Carrying out A/B testing on your site allows you to make the necessary changes that will motivate visitors to sign up for the trial. Run two versions of your site and see if there is a difference in conversion rates between different texts, images, videos, colors, etc. Ask customers for feedback wherever possible.
Personalize the free trial experience
The sign up provides the perfect opportunity for you to gather more information about the customer so that you can personalize the trial period to better suit their needs. Try to understand the users’ type of business and their intentions for the software you provide.
Nevertheless, remember that by over-complicating the process, you might put people off. If you want to learn more about your users but don’t want to lengthen the signup process, you can also send follow-up emails or messages, giving the customer a chance to provide you with more details about what they are looking for. Personalize these emails, so customers don’t feel like it’s an automated message!
Choose the right length for your period time.
You know the ins and outs of your SaaS product and all its features, but for someone who has never experienced it, how long would it take for a new user to become confident? Most would agree that one week isn’t enough. However, 30 days provide too much time for users to find similar products instead of signing up for your subscription. Shorter free trial periods mean users are more engaged. For the majority of SaaS businesses, 14 days is the ideal length of a trial period.
Educate and support your users
This is necessary for the entire time they are paying subscribers, but it is essential during the trial period. During the trial period, make sure you are in touch with the user, find out what features they have tried, educate them on the ones they haven’t. This is your chance to show them how beneficial your product is and how much time and money they can save.
SaaS business metrics are always going to be crucial for the success and growth of your business. Conversion rates help you to identify exactly where you can make improvements to increase your recurring revenue. Try not to be overwhelmed by conversion rate metrics and benchmarks but instead, see them as the tool to provide a better service.