Anyone can take a shot, how many can you make?
Your SaaS conversion rate is the ultimate judge of your sales and marketing prowess.
Now, in most industries, your conversion rate refers to the percentage of leads that buy your product.
But for a SaaS company, conversions happen at various stages — from lead capture forms and demo requests to free trials and freemium plans.
You’ll want to track the conversion rate at each stage of your sales process.
However, not all conversion rates are created equal.
You should pay especially close attention to your free-to-paid conversion rate — the one that shows what percentage of users become paying customers.
It’s sorta like the free-nancial report card of your SaaS company. 😉
In this article, we’ll cover what the SaaS conversion rate is, calculate the metric, benchmarks, and why you need to track conversion rates.
We’ll also highlight how to improve your SaaS conversion rate, and cover a few related metrics.
This Article Contains
- What Is the SaaS Conversion Rate?
- How to Calculate SaaS Conversion Rate
- Essential Free-to-Paid SaaS Conversion Rate Benchmarks + Practical Applications
- Why You Should Track SaaS Conversion Rates
- How to Improve Your SaaS Conversion Rate
- Related Metrics
What Is the SaaS Conversion Rate?
For a SaaS company, the conversation rate is the percentage of prospects who complete the specific action you want them to take, such as subscribing to your email newsletter, signing up for a free trial, or subscribing to a paid plan.
When most people talk about the SaaS conversion rate, though, they typically mean the percentage of freemium or free trial users who become paying customers.
Tracking your conversion rates throughout your funnel will give you powerful insights into the effectiveness of your entire sales process.
But Does Your Business Need to Track This Metric and How Often?
You should be tracking SaaS conversion rate if you have a subscription-based business model and aim to optimize your customer acquisition funnel.
This holds true for both early-stage and well-established businesses.
EVERYONE should know how well they’re converting their leads!
You should measure and analyze this metric on a regular basis to:
- Identify trends
- Assess the impact of optimizations
- Make data-driven decisions to improve conversion rates.
Got your attention?
Then I’m sure you’re eager for the magic formula.
Let’s take a look at how you can calculate conversion rates.
How to Calculate SaaS Conversion Rate
To calculate your conversion rate, you need to calculate what percentage of your total number of visitors converted (i.e., completed the desired action).
The general formula is:
|Conversion Rate = Number of visitors who completed the desired action over a period / Total number of visitors over the same period * 100|
But the formula can vary depending on your goals and where you want to track conversions. The conversion rate of different stages of your sales process depends on different “desired actions”.
For example, if you want to track the conversion rate of a lead capture form, the formula would be:
|Lead Capture Conversion Rate = Number of visitors who signed up as leads / Total number of visitors to lead capture form * 100|
If you want to track your free trial conversion rate, the formula would be:
|Free Trial Conversion Rate = Number of free trial users who became paying customers over a period / Total number of free trial users over the same period * 100|
To track any conversion, divide the number of users who took your desired action (over a certain period) by the total number of users who could have taken that action (over the same period) and multiply the value by 100.
Feeling like this?
Not to worry — here’s an example:
Let’s imagine that your SaaS business has 150 free trial users, but only 10 users become paying customers. In this case:
|The Free Trial Conversion Rate = 10 / 150 * 100 = 6.6%|
That means you probably got some fixing to do!
But what is a good SaaS conversion rate?
Essential Free-to-Paid SaaS Conversion Rate Benchmarks + Practical Applications
Depending on the nature of your SaaS business, here are a few crucial free-to-paid conversion benchmarks to aim for:
A. Visitor to Free Trial Conversion Rate (With No Credit Card Details):
According to a study by Totango, 10% is a good conversion rate here.
Companies with conversion rates less than 10% should refine their website’s messaging and value proposition, re-evaluate their call-to-actions, simplify the sign-up process, and consider offering incentives to increase trial sign-ups.
B. Visitor to Free Trial Conversion Rate (With Credit Card Details):
According to the same study, most SaaS companies see a 2% average conversion rate.
A conversion rate less than 2% means that you need to address potential customer concerns and build trust. Consider implementing a transparent refund policy, providing secure payment gateways and showcasing customer testimonials and success stories.
C. Free Trial (Without Credit Card Details) to Paid Conversion Rate:
8-10% is considered the ideal conversion rate benchmark.
For companies with a conversion rate less than 8%, consider enhancing the onboarding process, providing comprehensive tutorials and resources, offering proactive customer support, and highlighting the benefits of the paid version through in-app messages.
D. Free Trial (With Credit Card Details) to Paid Conversion Rate:
Softletter found that 66% of SaaS companies see a 25% average conversion rate.
Practical Application: If you have a conversion rate less than 25%, consider identifying any barriers or points of friction during the trial period, providing personalized customer support, and offering limited-time promotions or discounts to incentivize conversions.
E. Visitor to Freemium Conversion Rate:
According to FirstPageSage, 86 companies in the SaaS industry (29% B2C and 71% B2B companies) reported an organic conversion rate of 13.3%.
Practical Application: You can boost your visitor to freemium conversion rate by streamlining the signup process and clearly communicating the unique value and benefits of your freemium plan on your website.
F. Freemium to Paid Conversion Rate:
Insight Venture Partners reported that most freemium companies see a 1-10% conversion rate. But there are exceptions to this conversion rate benchmark. For example, Slack converts 30% of its freemium users into paying customers.
Companies can boost their freemium to paid conversions by striking a balance between free and premium features. You could also use in-app messages to communicate specific use-cases and the benefits of upgrading to a paid plan.
Sidenote: You might take into account here that asking for credit card details for your free trial may lead to fewer conversions from visitors but a higher conversion rate to paid customers. In other words, you’ll have fewer people signing up to try your product, but more of the people who do will actually buy.
Conversely, if you don’t ask for credit card details, you’ll have more users, meaning more opportunities to convert — but the overall conversion rate to paid customers will be lower.
Next, we’ll take a look at three reasons why you should track SaaS conversion rates.
Why You Should Track SaaS Conversion Rates
Your conversion rates can show how effective your sales and marketing efforts are at converting customers. It will help you see what’s working, what strategies you may want to drop, and where more work is needed.
Let’s see how tracking your conversion rates can benefit your business:
1. To Determine Which Marketing Channels Deliver the Best Results
When you track the conversion rate from different marketing channels, you’ll know exactly which marketing channels generate the best results.
It’s like having a crystal ball that tells you where to put your money to get the most bang for your buck! 🔮
This way, you can adjust your marketing budget and invest in the most profitable channels.
And you can avoid ending up in a situation like this:
2. To Optimize Marketing Processes
SaaS companies can use conversion rates to identify which areas of their website or marketing and sales funnel are underperforming and require further optimization — also known as conversion rate optimization (CRO).
For example, if you notice a low email subscriber to free trial user conversion rate, you could optimize your email marketing campaign to highlight the benefits of your free trial.
Additionally, if your free trial to paid conversions are low, consider adjusting your onboarding process to provide value quickly to users — before their trial period ends.
3. To Achieve a Better Return on Investment (ROI)
SaaS companies can improve the ROI of their marketing spend through conversion rate optimization.
There may be some additional costs associated with conversion rate optimization, such as investing in marketing automation software or hiring specialized talent.
But the increased revenue generated and reduced customer acquisition costs (CAC) over the long term can result in a better ROI.
In other words, you get more bang for your buck!
Are your conversion rates not where you want them to be?
Not to worry. We’ll cover a few tips to help you get more visitors and users to upgrade to a paid subscription.
How to Improve Your SaaS Conversion Rate
If you want to boost your lead conversion rate and achieve long-term customer success, it’s essential to make a great first impression on every potential customer.
We’ll share a few best practices below:
1. Remove Friction from Your Sign-Up Flow
Removing friction from your sign-up process is all about making it super easy for a new trial user to start using your SaaS product.
This includes ensuring the sign-up form is short and sweet 🍬 — consider only asking for their email address and name.
Research by HubSpot and Eloqua revealed that lead conversion rates tend to decline as the number of form fields increases. And removing one field can lead to a whopping 50% increase in conversion rates.
Yep, forms are like a first date — if you ask for too much too soon, your SaaS brand won’t get a second chance! 💔
You should also avoid asking a new trial user to verify their email and install additional apps.
2. Build an Effective User Onboarding Strategy
The user onboarding process is a critical component of customer success, as it sets the tone for the user’s entire experience with your SaaS product. You want your customers to react like this:
To do this, you’ll need to:
- Segment users and personalize their journeys: Use a welcome screen to not only welcome users but to collect information about them. For example, ask them what they want to achieve with your product and which industry they work in. You can also ask them to customize the product to suit their brand. The trick here is to keep it fun and worth their while!
- Use checklists and interactive walkthroughs: Short to-do lists can help a free trial user reach their desired outcomes quickly. And when paired with walkthroughs, you equip new users with all the tools they need to use your product properly.
- Take advantage of empty states: An empty state is the blank screen a free trial user typically sees once they’ve signed up. To improve the user experience, SaaS companies should replace empty states with use-case-specific videos, helpful tips, suggested actions, and more.
- Leverage different communication channels: Another way SaaS companies can improve user experience is by giving new users the option to communicate with you via email, live chat, phone support, in-app messages, social media, and more.
3. Amplify Your SEO Results with Conversion Optimization
Regardless of your SaaS model, certain factors on your website can hinder conversions. But you can improve your brand’s search visibility and increase conversions by investing in SEO.
CRO is a crucial aspect of any SEO strategy that can significantly impact a SaaS company’s revenue. By optimizing website content, landing pages, and user experience, CRO can improve the chances of converting website visitors into paying customers.
But improving conversions goes beyond website optimization. Given that free trial and freemium users may not fully understand your product and its value, a robust content strategy can educate leads at every customer journey stage.
Not sure where to begin?
Leave it to the experts at Startup Voyager — an SEO agency offering content and conversion optimization for SaaS companies across the US and Europe.
At Startup Voyager, 70% of our client’s articles rank on page one for their target keyword. And we’ve taken a client from 0 organic traffic to 100,000+ within a year!
4. Test and Gather Feedback
Use AB testing to determine what features drive the most conversions in your free trials and freemium plans. You can use AB testing to compare the performance of different landing pages, pricing models, sign-up forms, onboarding processes, and more.
Your sales team should also gather feedback from churned users. This way, you can determine why they left and provide future users with the necessary information, resources, and features to overcome these issues.
4. Identify If You’re Attracting Unqualified Leads
While it’s true that every free trial or freemium plan user has shown some level of interest in your product, assuming they are all qualified leads could be a dangerous game.
An unqualified lead is a potential customer who doesn’t really fit your ideal customer profile.
These leads may not have the right level of interest or need or the budget for your product to make a purchase.
If you notice high visitor-to-free-trial/freemium conversion rates but low free to paid conversion rates, you might be going after the wrong leads.
We’ll share two metrics you can use to determine whether you’re attracting too many unqualified leads:
A. Re-Evaluate Your Customer Acquisition Costs (CAC)
CAC is a metric that tracks how much you spend on sales and marketing to acquire one paid customer. A high CAC coupled with low conversion rates could indicate that you’re targeting unqualified leads or not effectively nurturing leads to become qualified.
To lower your CAC, consider spending less on paid marketing channels and ensure you’re targeting the right audience.
|CAC = Total amount spent on sales and marketing for a given period / Number of customers acquired in the given period|
B. Check Your Daily Active Users (DAU)
A low number of DAU may indicate that you’re attracting unqualified leads from the start — they don’t see enough value in your product to use it. On the other hand, if you have many daily active users in your freemium plan but a low conversion rate, it may suggest that they are just using your product temporarily or out of curiosity.
In this case, you may need to reassess your SaaS brand marketing strategy and focus on attracting qualified leads who are more likely to become paying customers.
|DAU = Unique new users + Unique returning users|
Next, we’ll take a look at a few additional metrics you should track alongside conversion rates.
These metrics below can give further insight into your conversion rate and tell you how well you monetize users:
1. Activation Rate
The activation rate tracks the percentage of users who completed a specific milestone in your onboarding process.
|Activation Rate = Number of users who attained the activation milestone / Total number of users who signed up for the product * 100|
2. Time-to-Value (TTV)
Time-to-Value is the time between a user’s first interaction with your product and the moment they achieve their desired outcome or reach their aha! Moment.
|TTV = Day of value realization – Day of account creation or signup|
3. Monthly Recurring Revenue (MRR)
MRR measures the monthly revenue a SaaS business generates from its subscription-based products or services.
|MRR = Total number of active accounts * average monthly revenue earned per account|
4. Customer Lifetime Value (CLV)
Customer lifetime value estimates the total revenue a new paid customer is expected to generate over the entire duration of their relationship with your business.
|CLV = Average value of a purchase * Annual purchase frequency * Average customer lifespan (years)|
5. Customer Churn Rate
Customer churn rate tracks the percentage of users who discontinue using your product over a certain period of time.
|Churn rate = Number of customers lost / Number of customers at the month’s start * 100|
Maximizing Your SaaS Conversion Rates: Key Takeaways
By tracking the SaaS conversion rate, you can identify areas where your marketing efforts are falling short and make data-driven decisions to improve your strategies.
Additionally, by tracking free to paid conversion rates, SaaS companies can determine how effectively they convince free users to upgrade.
Use the above strategies to boost your SaaS conversion rates today!