For SaaS businesses, demand generation is critical in driving revenue growth by ensuring the effective and sustainable generation of interest and demand for SaaS products among potential customers. An effective demand-generation strategy will help SaaS companies attract and convert leads into customers in a consistent way, so they can achieve healthy revenue growth.
With that being said, a well-designed and optimized sales funnel is a critical element of any effective SaaS demand generation strategy. By optimizing the different stages of the sales funnel, SaaS companies can also improve their whole demand generation efforts and ultimately increase their recurring revenue.
In this article, we will discuss all you need to know about building a winning SaaS sales funnel. We’ll outline the key stages and strategies for building a successful sales funnel, and we’ll explore:
- Key stages of an effective SaaS sales funnel: TOFU, MOFU, and BOFU
- How the different stages work together to build a winning funnel
- Top of the Funnel (TOFU) strategies and tactics
- Middle of the Funnel (MOFU) strategies and tactics
- Bottom of the Funnel (BOFU) strategies and tactics
- Metrics and KPIs to measure SaaS sales funnel’s performance
Let us begin this guide by discussing the basics: what is a sales funnel?
What is a sales funnel?
A sales funnel, simply put, is a visual representation of the journey (or process) that a customer goes through from when they first recognized a brand/product/service to the point of making their purchase.
It is called a “funnel” because when visualized, its shape is similar to that of a funnel: the top of the funnel–representing the first stages–is wider, and as the potential customers move through each stage of the journey, their number decreases, so the bottom of the funnel is narrower.
Thus, just like a physical funnel (for example, those we use in a laboratory or a kitchen), the sales funnel’s shape is widest at the top and narrowest at the bottom.
The stages of a sales funnel can vary for different businesses, but a typical SaaS sales funnel includes these five stages:
- Awareness: at this stage, the prospective customer becomes aware of the existence of the brand or the SaaS product.
- Interest: the potential customer is now interested in the SaaS product. This prospective customer has shown a sign of interest in some way, like visiting a website, signing up for a newsletter, downloading a free resource, trying the SaaS product, or submitting their contact information in other ways.
- Consideration: the potential customer considers purchasing the SaaS product and typically will compare the product with other solutions (i.e., competitors’). At this stage, the prospective customer evaluates the advantages and drawbacks of different SaaS products, reads user reviews/testimonials/success stories, and may also request a free trial or product demo.
- Conversion: the prospective customer finally decides that your SaaS product is the best solution for their problem and may take the necessary actions towards becoming a paying customer, such as adding the product to their shopping cart, calling your sales representative, or signing up for the subscription on your website.
- Retention: since most SaaS businesses rely on the subscription-based, recurring revenue business model, retaining customers over the long term should be the business’s main focus after a customer converts. This stage involves providing continuous after-sales support and improving the product’s value through new feature releases, bug fixes, and updates. This stage also involves encouraging customer loyalty through loyalty and referral programs, among other activities.
- Advocacy: the final stage of the SaaS sales funnel, here satisfied customers convert into advocates for your SaaS product, essentially promoting your product to their peers. For example, they may share testimonials or positive reviews of your SaaS product, promote your product through their social media profiles, and refer new customers to your business via a referral program (or organically.)
Importance and benefits of SaaS sales funnel
For SaaS businesses, the sales funnel is an important element of demand generation, critical for the SaaS business in driving revenue. SaaS companies typically have a longer sales cycle than most other businesses: they are not selling physical, tangible products, so they may require a longer time to educate potential customers about the SaaS product’s value and establish credibility over time.
This is where having an optimal sales funnel strategy would play its part in guiding potential customers in this relatively long sales cycle.
Here are some tangible benefits of having a winning sales funnel as a part of the SaaS business’s demand generation strategy:
- Improves conversion rates
Having an optimal sales funnel means the SaaS business can guide potential customers through a well-structured customer journey, which will ultimately result in improved conversion rates and increased revenue.
A clear SaaS sales funnel will also provide the SaaS business with a clearer roadmap on how to properly educate the prospects about the SaaS product’s values and how to nurture them until they are ready to make the purchase.
- Identify inefficiencies and bottlenecks
An optimized sales funnel allows SaaS businesses to identify any bottlenecks in its sales cycle, allowing them to make informed data-driven decisions on how to improve upon each stage.
For instance, if a high number of prospective customers are abandoning the funnel at the consideration stage, then it’s a good indicator that the Saas company should offer and/or communicate a more attractive unique value proposition (UVP) and solicit more positive reviews/success stories from existing customers.
- Enables data-driven decision making
Each stage of the sales funnel should provide SaaS businesses the valuable data on customer preferences, behavior, 3 3and pain points/obstacles. The company can then use this data to inform its marketing strategies, create a more optimal customer experience, and improve retention in the future.
- Facilitates more personalization for customers
A well-mapped sales funnel would allow SaaS businesses to accurately identify where each potential customer is at the sales funnel. This would provide the SaaS business with valuable insights into how to personalize its offers and messaging to meet the customer’s specific needs, preferences, and priorities.
Ultimately, a more personalized approach can help encourage conversions, and also improve existing customer satisfaction.
- Maximize budget utilization
A clear and optimized sales funnel can also help SaaS companies identify which of their marketing campaigns and sales efforts are the most effective at generating leads and driving conversions.
With this information, the SaaS company can optimize its spending by investing more in high-performance channels and reducing spend/eliminating 33 channels that aren’t very effective.
In summary, a SaaS sales funnel is critical in enabling a successful demand generation by helping companies identify and attract qualified leads, nurture them, and encourage them to convert in a streamlined sales process.
In the recurring-revenue SaaS business model, the sales funnel can also help the company enhance its overall customer experience, improving satisfaction, loyalty, and ultimately driving a higher retention rate.
Optimizing the sales funnel can help SaaS companies build a loyal customer base and drive more sustainable revenue growth.
Three key phases of a SaaS sales funnel
Although, as discussed, different businesses—and specifically SaaS businesses—can have their own unique stages in the sales funnel, we can generally divide all sales funnel into three main phases: the top-of-the-funnel (TOFU), the middle-of-the-funnel (MOFU), and the bottom-of-the-funnel (BOFU).
- Top-of-the-funnel (TOFU)
The top of the funnel (TOFU) is mainly when prospective customers become aware of a SaaS brand and its product (as well as additional services, if any).
For SaaS businesses, the goal of this stage is lead generation: attracting potential customers through various marketing channels and promotional efforts so these prospects can visit the SaaS business’s website or social profiles and submit their contact information (i.e., signing up for the company’s email newsletter.)
The majority of marketing efforts at this stage should focus on generating traffic to the website/platforms and building brand awareness. Examples of TOFU marketing efforts are content marketing,s social media marketing, SEO (search engine optimization), and various types of advertising.
- Middle-of-the-funnel (MOFU)
At this second phase of the sales funnel, potential customers have already shown some interest in the SaaS product—and most likely have given their permission for the SaaS business to contact them— but they aren’t ready to make their purchase just yet. It’s also common for customers at this stage to compare the SaaS product with competing solutions.
Thus, the goal for SaaS businesses at this stage should be about communicating the value of the SaaS product, providing prospects with the information they need to make their purchase decision, and nurturing leads.
MOFU strategies and efforts typically focus on establishing credibility and trust in front of target customers. Examples are email (drip) marketing, webinars to educate prospects, soliciting social proofs (reviews, case studies, success stories), retargeting campaigns, and releasing demo videos, among others.
- Bottom-of-the-funnel (BOFU)
The Bottom of the funnel (BOFU phase is the final phase of the sales funnel.
At this phase, the prospective customers have convinced themselves to purchase the SaaS product, and are ready to make the purchase.
Thus, for SaaS businesses, the main goal of this stage is to give that final nudge to make sure this customer can convert without any obstacles.
BOFU strategies typically involve making the conversion process as easy as possible for customers, removing potential obstacles like pricing objections or lack of information, and tactics to encourage immediate conversions such as limited-time offers, personalized demos, and free trials, among others.
When considering these three different phases, it’s important to understand that the sales funnel is not always a linear journey. It’s possible for customers to move back and forth between phases: a prospect that has initially made up their mind about purchasing product A may go back to the consideration stage once they’ve stumbled upon an ad from product B, and so on.
With that being said, SaaS businesses must regularly monitor and evaluate their strategies at each stage of the funnel and adjust their strategies when needed to ensure that they are effectively meeting the needs of the prospects, catering to their interests, and maximizing the chances of conversions.
Below, we’ll have a more in-depth discussion of strategies and channels SaaS businesses can leverage at each phase of the sales funnel for optimal demand generation. Let’s begin with the top-of-the-funnel (TOFU) strategies.
Strategies for the TOFU (top-of-the funnel)
At the top-of-the-funnel (TOFU), SaaS businesses should focus on two key things: building brand awareness, and attracting potential customers via various channels. These two would ensure effective and sustainable demand generation as the foundation for the rest of the funnel phases and steps.
To achieve these two objectives, below we will discuss some of the most effective strategies SaaS businesses should leverage. However, we should start by building a solid foundation.
Defining target audience for SaaS demand generation
The first, and arguably most important step in creating a successful TOFU strategy for any business is to identify and understand its target audience.
Not only identifying the target audience will be useful in building the sales funnel and demand generation strategy, but it will also help the SaaS business in planning its overall marketing strategy.
It will ultimately help the business to focus its time and resources on the people who are most likely to convert to become customers, maximizing marketing ROI.
Here are some steps you can follow in defining a SaaS target audience:
- Conduct market research
Start this process by conducting research on your industry and competitors to get a more thorough understanding of your market.
There are various approaches you can use to conduct your market research, including:
- Analyzing your customer base: if you already had an existing customer base, you can leverage your CRM solution or other tools to analyze the demographics data and characteristics that they share. You can also conduct interviews or surveys with these customers. These would allow you to learn more about them and determine your ideal customer’s profile.
- Competitive analysis: analyze your direct and indirect competitors to assess the target audience they are targeting, their unique offers, and their strengths/weaknesses. You can leverage this information to help you create a unique value proposition (UVP) for your SaaS product and target a specific niche.
- Leverage tools: there are various free and paid tools available that can help you conduct market research in an accessible way. Some free online tools you can leverage are SurveyMonkey (to conduct online surveys), Google trends, Facebook Audience Insights, Google Analytics, and so on. These tools can provide the SaaS business with valuable insights into your existing customer base’s demographics, behaviors, and interests.
- Surveys, interviews, focus group discussions: conduct surveys, interviews, and focus group discussions to help you gain more accurate information about your target audience’s needs, preferences, and pain points. Alternatively, you can partner with a research firm to conduct interviews and surveys on your behalf. This is a more expensive option but can be well worth it if you do have the budget.
Once you’ve gathered data from these various approaches, analyze the collected data to identify patterns and gain insights into who your ideal audience is and what their behaviors, preferences, and pain points are. The idea is to leverage this data to create more targeted and effective TOFU strategies (as well as the marketing strategies as a whole.)
- Develop buyer personas
Based on the result of your market research, create buyer personas for your SaaS business.
A buyer persona is a fictional model that represents your ideal customer. This model should be as detailed as possible and should include information such as:
- Demographic information, including age, gender, location, income level, education level, and other relevant demographic information
- Job title and role. Especially important for B2B SaaS businesses.
- Industry and company size. This information helps the SaaS business understand the specific needs, goals, and challenges of the specific industry the target audience works in.
- Goals, priorities, and challenges.
- Purchasing behavior. How does your target audience research their option and how do they make their purchase decisions?
- Preferred channels and sources. Where does your target audience go for information? How would they prefer to consume content? At which channels?
- Personal values and motivations of your target audience. This information can provide valuable insight into how you should create personalized content and messaging that resonates with them.
- Consider the buyer’s journey
While in practice, every customer is unique, think about the typical stages the target audience (as represented by the buyer persona) goes through before making their purchase. Also, consider what information they may need at each stage to move forward to the next stage of the funnel.
Understanding the buyer’s journey will help you in building your winning sales funnel, especially in creating targeted content for each stage of the funnel.
- Monitor and refine
Remember that as you run the SaaS business, your target audience may change whether due to your growth or the changes in the market.
It’s critical to continuously monitor and analyze the market trends, developments in the industry, and especially your customer data. Use the information to adjust and refine your target audience and buyer persona(s) as needed.
Content marketing for TOFU
Now that you’ve properly defined your target audience and have developed your buyer persona(s), we can move on to the first demand generation strategy we should implement in the TOFU (top-of-the-funnel) phase: content marketing.
While content marketing is an essential part of arguably any stage of the sales funnel and any demand generation strategy, it is especially critical for the TOFU phase, where the focus is to attract prospective customers.
In this social media age, traditional advertising and promotional messages are no longer very effective in attracting customers and building awareness. People are growing more resistant to these forms of intrusive and disruptive marketing, and have developed what we call banner blindness.
Instead, modern businesses should now use the inbound marketing principle to attract prospects and generate leads. As opposed to traditional (outbound) marketing that pushes disruptive messages outwards to as many people as possible, inbound marketing is about attracting prospects inward by publishing valuable information that helps this prospect solve their problems.
At the core of inbound marketing is content marketing, amplified with SEO. Valuable, relevant, and high-quality content that is visible on the search engines will be available for prospects that are currently searching for information, and this way SaaS companies can establish themselves as thought leaders in the industry.
Here are some key steps to take when developing a content marketing strategy for your SaaS business’s demand generation purpose:
- Keyword research: based on your buyer persona(s), conduct keyword research to identify keywords and phrases frequently searched by your target audience that are also relevant to your SaaS business. Check the competition for these keywords, and make a list of which keywords you’d target first based on your time, resources, and budget. Use this list as your foundation in developing a content plan.
- Develop a content plan: your content plan is essentially a roadmap that covers the type of content, as well as when and how the content will be delivered over a period of time. Your content should be diversified enough and include a variety of formats like blog posts, videos, infographics, and other types according to your audience’s needs. The content plan should also include a timeline and plan for content promotion.
- SEO optimization: to maximize the impact of your content–according to the inbound marketing principle discussed above, it’s critical to optimize the content for the search engines. Naturally include the target keywords in your content’s body, title, Meta description, and image alt text. However, make sure the content is still comprehensive and valuable for the human audience.
- Content promotion: no matter how good and relevant your content is, it won’t bring any value to your SaaS business if your target audience isn’t consuming it. In addition to SEO, promote your content through other marketing channels, such as social media (organic and paid), influencer marketing, email marketing, and even advertising.
- Monitor and adjust: content marketing and SEO are both long-term strategies, so it’s critical to continuously monitor the performance of your content marketing campaign, identify issues and opportunities, and make adjustments as needed. Leverage data to improve your content marketing strategy over time.
Other TOFU strategies
Other effective demand-generation strategies you can implement in the TOFU phase include:
- Referral marketing
SaaS businesses can leverage referral marketing to amplify their reach and attract more customers through word-of-mouth. By creating referral programs and discount offers, you can incentivize existing customers to refer peers, friends, and family members.
- Social media marketing
With virtually everyone on social media these days, it’s only obvious to market your business on social media. The question is, how? First, make sure to choose the right platform(s). LinkedIn, Facebook, and Twitter are especially great for SaaS demand generation, but you can leverage other platforms.
Next, use the combination of organic efforts (building your own followers,) paid efforts (using paid options like LinkedIn Ads), and influencer marketing outreach to reach a wider audience and offset your costs.
- Leverage paid advertising
Although on its own, advertising is no longer very effective, you can still use it to support other strategies. Paid advertising is generally effective in generating fast results, but the downside is that it can be very expensive.
The secret is to make sure your advertising campaign is highly targeted and utilize retargeting/remarketing to maximize ROI.
- Landing page optimization
An effective and optimized landing page is highly important as a TOFU phase strategy. The quality of your landing page will literally make or break the SaaS demand generation’s success.
Make sure your landing page is optimized for capturing leads with attractive and clear lead magnet(s), concise messaging, compelling CTA(s), and optimized forms that are easy to complete even on mobile devices.
Strategies for the MOFU (middle-of-the-funnel)
As discussed, the middle-of-the-funnel (MOFU) phase is mainly about engaging with prospective customers that have indicated their interest in your SaaS product.
The strategic focus of this phase would be to nurture the prospects with highly targeted and personalized content to encourage them to move closer to converting into paying customers. Below we will discuss some effective MOFU strategies you can implement:
Targeted and personalized email marketing is one of, if not the most effective channels for the MOFU phase, including for SaaS businesses.
Email marketing is especially effective with high ROI in nurturing leads, and enticing potential customers to move further down the sales funnel until they are ready for purchase.
In this MOFU phase, SaaS businesses can leverage personalization to create effective email campaigns that are tailored to the target audience’s unique needs and pain points. Studies have suggested that personalized emails have higher open rates and click-through rates, making them more effective in lead nurturing.
SaaS businesses can segment their target audience based on industry, job title, location, age/gender, behavior, and other factors, and then send personalized emails that are hyper-targeted to each segment.
Content Marketing for MOFU
Although it’s more prominent in its TOFU role in attracting prospects, content marketing is also effective in engaging and nurturing leads in the MOFU phase.
In this phase, SaaS businesses can publish more in-depth and focused content, such as white papers, case studies, and success stories, and leverage other forms such as webinars and videos. Of course, “standard” blog posts can also work quite effectively.
The focus of this phase is to publish educational and informative content to establish credibility and thought leadership. Don’t hard sell and make the content too sales-focused.
Leverage various channels such as social media, email marketing, and others to distribute and promote content.
Leverage retargeting ads
Retargeting ads, simply put, are ads shown to those who have visited the SaaS business’s website or interacted with its content, but have not yet subscribed or converted. In short, these ads are only displayed to those who are already in the MOFU phase, that are more likely to convert.
Various platforms now offer the option to publish retargeting ads, such as Google, LinkedIn, Facebook (and Instagram), and Twitter. SaaS companies can highlight time-limited offers or showcase social proofs (i.e. success stories and testimonials) on these retargeting ads to entice conversions.
Strategies for the BOFU (bottom-of-the-funnel)
At the bottom-of-the-funnel (BOFU) phase, the prospect has already considered making their purchase and converting into a paying customer.
This phase is crucial for SaaS businesses, as this is where the revenue is actually generated, and here are some strategies to encourage lead-to-customer conversions at this BOFU phase:
Creating an optimal pricing strategy
Obviously, how much you price your SaaS product will play a critical role in converting prospects into paying customers.
Make sure to have a simple and transparent pricing strategy, and align it well with your customer’s budget according to your market research.
If you offer multiple pricing plans, then make sure it’s easy to find information for the different pricing plans. Make sure to explain clearly and in detail what features each plan includes. The last thing you’d want is to confuse prospective clients and prevent conversions.
Also, consider offering annual subscription discounts or bundles.
Offer a free trial or demo
Consider offering a freemium version of your SaaS product or a free-trial period so your customers can try your product–which may encourage them to make the purchase after they’ve experienced the product.
A freemium or free-trial version of your SaaS product (or a free demo) can help prospective customers understand your product’s features and values, and you can follow it up with personalized emails and other communication methods during the trial period to help them make the most of your product. Use this opportunity to also showcase your customer support quality, and aim to deliver your best possible customer service excellence during this period.
If it’s a product demo, make sure it’s optimized, easy to use, and effectively highlights your SaaS product’s unique features and benefits.
Customer service excellence
In the BOFU phase, providing excellent customer service can literally make or break your chance of converting leads into customers, and also in retaining existing customers.
Ideally, you should provide 24/7 support in multiple channels, such as chat, phone, and email. Try to respond promptly to questions and concerns, and address any issues ASAP.
Again, try to provide your best possible support for prospects in the free-trial period or those trying the freemium version of your product. For new customers, make sure to provide onboarding support and offer a comprehensive help center to help them make the most of your product.
Leveraging social proofs
Case studies, testimonials, reviews, and other forms of social proof are exceptionally important in the BOFU phase for converting leads into customers.
Display compelling success stories and case studies on your website that showcase how your product has helped other customers achieve their goals and solved their problems. Encourage existing customers to leave customer testimonials, ratings, and reviews on their social media or relevant platforms to help you establish credibility and trust with prospects.
Measuring the performance of your SaaS sales funnel
To ensure the success of the sales funnel in the long run, it’s crucial to track and analyze the right metrics and KPIs so you can quickly identify any issues and make data-driven decisions to adjust your funnel accordingly.
Here are some key metrics and KPIs to track when monitoring your SaaS sales funnel’s performance:
- Traffic: refers to the total number of visitors to your website, landing pages, or other platforms. Tracking traffic will especially help you keep track of how effective your TOFU (top-of-the-funnel) strategies and tactics are at attracting prospects to your website or platforms.
- Conversion rate (by phase): track the conversion rate at each phase (TOFU, MOFU, and BOFU) of the sales funnel so you can identify bottlenecks and inefficiencies at each phase. By identifying these areas for improvement, SaaS companies can optimize their content and messaging at each phase, as well as fine-tune other strategies, to increase conversions.
- Time to close: this metric refers to the average time it takes for a prospect to convert into a paying customer. Reducing the time to close would allow SaaS companies to increase their revenue and cost efficiency.
- Customer lifetime value (CLV): measures the total revenue a single customer brings to the SaaS business over their lifetime (the length of the relationship between the customer and the business.) The idea is to spend more time and resources on potential customers with higher CLVs.
- Churn rate: the percentage of customers who do not renew or cancel their subscription to the SaaS product. Tracking churn rate allows SaaS businesses to identify the reasons why people stop their subscriptions, and how to maximize customer retention.
- Average revenue per user (ARPU): a critical metric to track for SaaS companies with the subscription-based recurring-revenue model, ARPU measures the average revenue per customer/user. Increasing ARPU will naturally allow the SaaS business to increase revenue and profitability.
- Customer acquisition cost(CAC): pretty self-explanatory, how much it costs the SaaS business to acquire a new customer. Measured by taking into account all of the demand generation and sales funnel efforts costs (i.e., advertising, content creation costs, etc.)
- CAC: LTV ratio: this metric measures the ratio between the cost of acquiring a customer to this customer’s lifetime value (as discussed above). A CAC: LTV ratio of 3:1 or higher, meaning, the lifetime value of the customer is 3 times or higher than the cost of acquiring them, is considered “healthy.
Best practices for tracking and analyzing SaaS sales funnel’s performance
Below are some best practices you can follow for tracking and analyzing a SaaS business’s sales funnel performance:
- Define your goals: establish how you would define success from the sales funnel. What do you want to achieve with this funnel in relation to your SaaS business’s demand generation? Establish clear goals before you start tracking metrics and KPIs.
- Leverage a CRM solution: a CRM (customer relationship management) tool can help facilitate lead and customer interaction tracking throughout the different stages of the sales funnel. This will allow you to analyze valuable data for optimization in a single, centralized space.
- Analyze each stage accordingly: break down the sales funnel into its different stages, and analyze them separately. This way, you can identify where prospects are abandoning the funnel, potential areas of improvement, and where you need to optimize the funnel.
- Leverage A/B testing: create two different versions of campaigns or elements of campaigns and test them to see which version performs better. You can use A/B testing to analyze and optimize different elements of your sales funnel (i.e., landing page design, logo, email subject lines, etc. )
Building a winning SaaS sales funnel to maximize your demand generation effort especially requires a thorough understanding of your target audience, optimal strategies for different phases of the funnel, and continuous monitoring/optimization of KPIs.
By implementing the strategies we have discussed above, by now you should have a solid foundation for building a robust and effective sales funnel for your SaaS business. In turn, your sales funnel can help you optimize the demand generation efforts to generate highly qualified leads and nurture them into actual customers.
In turn, your winning sales funnel and optimal demand-generation efforts will provide you with a solid basis for sustainable success and growth in your SaaS business.