If you’re starting out in SaaS you’ve probably read a lot about SaaS sales models. What type of sales should you target? Do you need an in-house sales team? Are you selling business to business or targeting individual users?
For the sake of simplicity, we’d encourage you to think about the three standard models of sales that we tend to see repeatedly used in the SaaS field.
- The self service model – This model has no sales team involved; all the work of sales is done by your marketing materials and an automated self-service webpage. Users choose their price plans and process the payment online. A common choice for low-touch and freemium SaaS companies. Freemium companies can use a variety of sales models, however.
- The transactional model – This model is when sales teams start getting involved. Used for more expensive and complex SaaS products, whose potential buyers require some help and support.
- The enterprise model – This model focuses on making smaller amounts of sales to large scale businesses. The product will typically be highly specialised, and any sale will require a long sales cycle overseen by a committed and varied sales team.
While understanding the theory behind these models is useful, how can you, a SaaS entrepreneur, know which is right for your business?
To help you make this crucial decision, this post will take a deeper look at examples of each of the three basic sales models.
Self-Service (including freemium)
Notion is a SaaS company that provides a modular and highly customisable workspace. It offers tools to organise and plan a wide variety of tasks across both personal and professional environments.
Notion’s early development is a great example of how to use a freemium sales model and rely on user self service. Its wide user base, easily communicated value propositions and the high virality of the product all make low-touch a great choice for this product.
Notion’s entry-level plan ‘personal’ is free for all users. This is a typical offering for SaaS companies – a free plan to tempt users into the paying services. Notion have opted for a couple clever twists to the common approach here.
Firstly, Notion makes its paid personal-plus plan free for university students. This is a calculated risk on the part of Notion.
They are targeting a particular profile of users; organised and hard-working students. The bet is that such users are likely to keep using Notion after they graduate and to upgrade to paid plans.
Notion’s sales model also leans into user engagement. Notion allows for a high degree of user customisation. It encourages users to share these new ‘templates’ with others.
This policy cuts down on the overheads incurred by offering a free plan. It effectively outsources part of the UX and design work to the user base. In doing so, Notion works against some of the drawbacks of a self-service model.
The key to Notion’s early success with this sales strategy was the product’s high virality. Notion is designed to be shared, and targets users who will promote and evangelise about the product themselves. This helps the freemium model achieve its key objective of a wide user base.
Notion has found great success in user-led marketing; the popular UK vlogger Simon Clark credited the app with ‘turning his life around’ in a video where he recommends Notion to his viewers.
Notion’s early successes with self-service has allowed it to hire a sales team and transition to the transactional model of sales.
The Transactional model
When deciding on a sales model, it’s important to recognise who the natural clients and user base for your SaaS will be. To explore this, and the benefits of a transactional model, let’s have a look at ShopKeep.
ShopKeep is a point-of-sale (POS) SaaS targeted at small businesses. It offers cash registering and payment software.
ShopKeep has an online payment system like many self-service enterprises, but it also has a dedicated customer support and sales teams in the style of a transactional company.
ShopKeep’s product matches up very well with its sales models.
Firstly, a freemium model would not inspire the confidence that its potential clients need.Small business owners are entrusting a core part of business to a SaaS product. They therefore need to be sure they are signing on to a quality product. A free price point does not effectively communicate the value and quality of this service.
Secondly, small businesses using POS software like ShopKeep also need access to dedicated customer support and sales teams. If a small business encounters a problem with ShopKeep, it can disrupt their entire income stream and service effectives.
ShopKeep therefore needs to assure potential customers of their reliability, and to support current users during technical problems. The transactional sales model includes such teams as part of a SaaS enterprise.
Thirdly, small businesses are more likely than large enterprises to have a need for ShopKeep. Established businesses are more likely to have already invested in POS hardware, like dedicated cash registers.
ShopKeep reduces the initial investment on cash registering for small retailers and restaurants. They need only purchase a tablet computer and a subscription to ShopKeep, as opposed investing in specialised cash registers.
These different factors all make small businesses ShopKeep’s natural user base. They also make a transactional model of sales the most attractive option for ShopKeep to use.
The investment in a sales and support team is worth it for ShopKeep to provide the right type of sales experience for their key users.
As ShopKeep expands its user base and reputation in the market, it can begin to look towards larger clients. It can then transition towards the last major type of sales model; the enterprise model
Canvas is a learning management service (LMS) for schools and higher education providers. It offers file-sharing facilities, message boards and class management services to educators.
LMS’s like Canvas are increasingly important parts of education provision. Particularly in the last year, with many countries moving to virtual schooling, Canvas provides a key link between students and their teachers.
An education authority’s decision over which LMS to use will take a long time. This type of long sales cycle, where the client requires multiple points of contact with the SaaS provider and numerous sales meetings, is a key part of the enterprise model of sales.
Before opting to use Canvas, education authorities will require approval from many different levels of their organisation before committing to using Canvas. The contract will last for years and be worth large sums of money.
Canvas therefore needs a large and talented sales team that can speak to the concerns of the various stakeholders involved in an enterprise contract.
Canvas’s user base is large, but its actual number of clients is small. In the UK, for example, there are only several hundred potential clients for Canvas. Only those education authorities with a need for a new LMS will pay for Canvas. Compare this to the thousands of students and professionals who might sign up for a freemium service like Notion
To earn enough sales, Canvas needs a targeted and deeply researched sales strategy – one that systematically identifies education authorities with a need for a new LMS.
The teachers and lecturers who use Canvas will have a wide variety of technical skills and knowledge. Staff require training to understand how to best use Canvas and how to manage their student’s learning.
During the sales process, Canvas has to therefore train members of the education authority in how to train the rest of the staff using the LMS.
Canvas, like all enterprise sales SaaS companies, needs impeccable marketing and presentation materials. It needs to make a strong and consistently professional impression on the decision makers in education authorities who have to sign off on the purchase.
These kinds of demands may make enterprise sales seem impossible, but they are the backbone of many successful SaaS companies. Canvas itself attracts many high-profile clients such as Stanford, Cornell and the University of Oxford.
Enterprise sales are the right fit for complex and specialised SaaS products. However, for an enterprise sales strategy to work, the company needs a well-run sales team with a wide variety of skills.
Hopefully seeing these examples of successful SaaS companies will have helped to demystify the sales models behind them. A sales model exists to help a SaaS company target its core users and to maximise revenue.
The right sales model for your company is the one that best matches the profile of your core users, and that best fits the design and value propositions of your product.
It’s also worth bearing in mind that the models are not mutually exclusive. As Notion has advanced, it has used its freemium-fuelled success to target enterprise clients. It now provides workspace services for companies as varied as Duolingo and Blinkist!
Learn about, and from, every type of sales model and you’ll position yourself to make the right decision for your company.