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Masooma Memon on October 20, 2020 (last modified on November 2, 2020) • 16 minute read
For a SaaS business model, the average deal size is one of the most important factors when it comes to determining the business’s health.
It’s not uncommon for SaaS companies to completely overlook this metric and direct all attention to their pricing. Quite frankly, that’s a wrong move because, more often than not, pricing is a part of your SaaS average deal size.
Now, it’s easy to assume that your average deal size isn’t in your hands. But that’s not true – you can influence the average size of deals your business closes for boosting your revenue too.
Sure, working toward ballooning your average deal size is not the easiest task out there. But the work you put in can produce amazing results!
Wondering what your average deal size is and what you can do to increase it to benefit your business? This guide that will cover all this and more:
Average deal size refers to the average size of your deals. It is the average value that you drive from your deals in a segment.
For an easier explanation, your SaaS average deal size is the average money you make from closed-won opportunities in a particular period of time (a month, quarter, or year).
If you translate this into SaaS business language, average deal size is your average earning made from users’ subscriptions in a month or year.
So why do you need to know your average deal size as a SaaS business?
It’s simple, really:
Editor’s note: Get a snapshot of your sales funnel with this free Marketing & Sales Overview dashboard. It shows the deals you’ve sealed this month, opportunities and leads coming in per day, and conversion rate for the funnel among other essential metrics.
There are several webapps in an industry, selling the same product to the same target audience. And yet, their average deal size varies meaning some companies have weaker sales processes, while others have stronger practices in place.
This shows that there is an opportunity for growth here. But wait – how do you calculate your average deal size to determine where you stand?
Calculating your SaaS average deal size isn’t rocket science. Just divide your revenue in a period of time by the number of users at that time.
If you’re confused about what you can do to increase your SaaS average deal size, don’t be. We’ve reached out to experts in the field and collected their tips on how you can increase your average deal size to help you out.
Here’s a list of all the strategies you can try:
1. Upsell and cross-sell
2. Leverage customers’ pain points
3. Price based on value
4. Build relationships with customers
5. Increase your deal’s duration
6. Improve your customer’s experience
7. Sell more based on value
8. Expand your product line
9. Train your customers to better use your software
10. Offer bulk discount
11. Reevaluate your pricing
12. Bundle up additional perks
Ready to boost your average deal size? Dive in to learn the details:
Finding new customers isn’t the only way to open the doors of selling opportunities. Upselling to existing customers, for instance, by encouraging them to upgrade to your premium version, is a great way to increase your average deal size. You can also cross-sell other relevant services or features of your app to customers.
In this regard, William Chin of PickFu.com recommends, “Just like up-selling or cross-selling in eCommerce, SaaS tools have the exact same capability albeit different since it’s a service, not a product.
So, for example, if you know that a user is going to convert on a basic package (filled out their credit card information etc..), consider hitting them with a discounted up-sell promotion before they checkout. This incentive might help increase your average deal size all the bit more.”
Jonathan Aufray of Growth Hackers Agency also suggests you follow this approach at the checkout step. Aufray says, “You want to show upsells and cross-sells to your clients during the payment process if you want to increase your average deal size. It’s important to show relevant products when doing so.”
Chin elucidates his point by adding, “One way that we increase our average deal size is by offering add-ons or upgrades at a discount when you are checking out.”
So, now you know exactly at what point you’re supposed to upsell or cross-sell, right?
“One of the ways we’ve found that can work to increase deal size is by entering the conversation through one of the pain points of an organization,” says Nevin Chetry of Seethos.
So, how does this help? Basically, when you tap into customers’ pain points, you have an opportunity for “upselling or cross-selling further solutions or products.”
“This can either be in terms of one deal (package) or as a separate deal, but the main idea is to get a foot in the door and then building on that relationship or discussion to offer or increase the scope of the work,” explains Chetry.
Lesson learned: you can upsell or cross-sell not only at the end, during processing payments, but also at the very start.
Apart from understanding your customers’ struggles, you should also “really understand a customer’s goals and plans for the future,” as Lydia Sugarman of Venntive suggests.
She explains that this “enables you to make informed, relevant recommendations for additional features and/or managed services to help them reach their milestones while solidifying the customer relationship and loyalty.”
You may think that increasing the price of your SaaS product is a simple way to increase your SaaS average deal size. Beware though: raising the price needlessly can prove to be a setback.
This is why your focus should be on the value that your product provides – on how your application provides a solution to a problem your customers face.
So, how would you know whether you can increase your pricing?
Kenneth Burke of Text Request has an answer for this. Burke says, “Charge more for the same thing. If you’ve got a solid sales pipeline, and customers aren’t beating you up on your prices all the time, then people see value in your software.” This means, “they’re probably willing to pay more.”
You don’t have to increase your prices by a huge number. That can backfire. In fact, “even an extra $10/mo adds up over time” so increase your pricing slowly and wisely.
AutoinsuranceCompanies.org’s Melanie Musson says, “Build personal relationships with existing customers.” Nurturing relationships with customers is a move that you’ll never regret. In fact, it can even be a game-changer for you.
Start with customizing your messages for personalization. For instance, personalize your emails by addressing all customers by their names. Moreover, pay extra attention to customer satisfaction by responding promptly to customers’ concerns and queries.
You’re probably wondering how building relationships, rather than being desperate for subscriptions, can boost your SaaS average deal size. Musson explains this, saying, “Relationships build trust. When your customers trust you, you’ll have an easier time upselling or selling a new, more valuable product.”
Andy Hoek of Invalshoek also gives input on what SaaS companies can do to increase their average deal size. Hoek suggests, “In my experience, the best way of increasing the size of a SaaS deal is by increasing the duration of the deal.”
Not only is this smart, but it shouldn’t be too difficult to implement either. Because as a SaaS provider you already have to work more on retaining clients for a longer-term.
So, follow Hoek’s advice and “instead of aiming for a one month or quarterly contract, aim for a one year of even two-year contract. Even if you offer a 5% discount if a client opts for a yearly contract instead of a monthly contract, the deal size will still be much bigger.”
As we discussed, you can’t just bump up your pricing based on nothing for increasing your SaaS average deal size. Customers should be able to drive extra value out of you, compared to your competitors, for them to be willing to pay more.
Bob Sabra from Hovi explains this perfectly. Sabra shares, “You can find very similar software solutions (in functionality) priced very differently, and you would ask yourself why. Then you engage with their sales process, and throughout the interactions, you start realizing why exactly their pricing is higher. It’s about the entire experience. From the moment you request a demo, a trial, or a quote, to the moment you make a purchase to the on-boarding and everything after that.”
A good experience with your company helps customers understand that you’re charging higher for the value they’re getting. The thing is, when “you sell based on value, not features, then you’re good to double or triple your average deal value. Clients at the end of the day are buying the brand and are bought into the idea that your brand/company/solution will help them solve their problem,” continues Sabra.
Adam Smartchan from Altitude Marketing is of the same view. Smartchan echoes, “Remove friction from the process.” To this end, Smartchan says you can “make your signup process simple and straightforward, and – above all – make it easy to add licenses and team members.” When you make your customer’s journey with you smooth, “you’ll convert more users, and those that convert will spend more.”
“One of the most effective ways you can do to increase your deal size is learning to sell based on value,” says Catriona Jasica of Top Vouchers Code. Jasica goes on, “Talking about the value takes the customers into thinking of how their situation can improve by implementing your solution.”
Breadnbeyond’s Andre Oentoro agrees. “When it comes to improving my average deal size, I rely most of the time on providing and demonstrating value to our target customers. Value can be anything, from cost savings to time, to even peace of mind,” observes Oentoro.
For example, Oentoro shares, “We offer them [customers] our product and show them how they can solve their problems or make their lives any easier. This way, they can connect to our brand on a more personal level and should have no problem in trusting our brand. This, as a result, helps create reasons to further our sales conversations and their buying process.”
Jason Wong from Doelashes insists on this too. Wong points out, “Sell value, not features. Remember the value the product would provide to consumers when you start to evaluate the cost of seats or how much each feature of your product is worth.”
Editor’s note: Get a full grip on your sales funnel by tracking deals created, deals won, closed-won amount, and more with this HubSpot Full Funnel Analysis.
You can’t upsell or cross-sell to boost your SaaS average deal size if you don’t have more than one feature or package to offer. This is why High Alpha’s Drew Beechler recommends you widen your product range.
Beechler elaborates, “Having 100%+ net dollar retention in SaaS is the holy grail. One of the biggest ways to grow not only your average deal size, but also impact upsell growth and net dollar retention is through product line expansion.”
Beechler also gives you an idea of how expanding your product lines assists in increasing your average deal size: “As you begin to build out new product lines and offerings, you can easily increase deal size and stickiness within an existing customer. It also gives you more freedom in your pricing and packaging levers for new customers.”
When your customers know how they can make the most of your higher-priced features, they’ll see how that can benefit them. This leads them to spend more to avail those features. Eliza Nimmich of Tutor the People thinks this is a great way to grow your average deal size.
Nimmich shares, “Generally, you should actually promote further use, believing that with extra functionality you charge consumers further. For example, you might allow the main account owner to invite more people or handle more tasks if you have a project management app where you charge either for the amount of users or for the number of projects being handled.”
To help your customers understand your product and its benefits better, “consider giving your clients educational programs to help them get the best out of your instrument. The more your consumers integrate the app into their everyday lives, the more they utilize it and focus on it, expecting to introduce more functionality as they move,” Nimmich advises.
Kim Chan from DocPro Services advises you to offer a bulk discount.
Chan talks about what they’ve been doing over at DocPro Services, saying, “We have been charging $2 to $6 per document, which is not very effective in sales. However, our sales skyrocketed as soon as we partner with other sites (AppSumo) to offer bulk discount – e.g., $49.99 per 100 document credits.”
Before you go out there and offer a huge discount, wait. Take a step back and strategize the discount you’re going to offer and only offer it if the odds seem to be in your favor. This is because discounting can also reduce customers’ willingness to pay full price and may increase churn rate.
You need to give an in-depth thought to price increases for growing your SaaS average deal size. You don’t want to charge too less and miss out on more revenue. At the same time, you don’t want to charge higher than your product’s scope.
Lazar Stojkovic from Dev Shopper explains this well: “Make sure your price is not disproportionate to what an alternative solution to the problem would cost. Say, if you are charging $12,000/yr while saving the customer $100,000/yr by automating something that they would have to hire a specialist for, there’s a lot of space for increasing the price without getting any pushback at all because the delta is still significant.”
You can also increase your price for customers committed to your product.
Soapbox’s Brennan McEachran suggests you should “separate expansion revenue from new revenue.” McEachran continues, “We found that people tend to be more price-conscious when deciding to buy for the first time vs. when they’ve committed to a product and want to add functionality by bringing more people on.”
McEachran also says that it’s about how you “position” your product’s price. “For example, $7/user/month might seem expensive compared to the cost of Gmail per user… But if, as a salesperson, you explicitly choose how the prospect should position the price you’ll immediately do better in negotiations on price.
At Soapbox for, example, we can compare our pricing of $7/user/month to coffee. $7/month per person is less than what you’d likely spend on buying coffee for your team each month if you were in the office again and wanted to do a walking 1:1.”
If you want to raise your SaaS average deal size, don’t be just like any other application. Offer more.
Theresa M. Lina of Lina Group suggests this. Lina opines, “A useful way to both increase average deal size and set you apart from similar offerings is to bundle in additional perks that kick in at higher volume purchases and help ensure the customer gets valuable results.
For example, above a certain number of users/seats, you might bundle in training, additional features, consulting services, etc., provided the extra cost to you will be more than offset but the increased volume and recurring revenue.”
But what can you do at the individual buyer level to offer more? “You might offer premium subscriptions with unique perks that are almost impossible to resist and more than worth the extra cost in the buyer’s mind without costing you much extra to provide,” adds Theresa. “This bundled approach has the added benefit of making an apples-to-apples comparison to competitors difficult, if not impossible.”
SocialChimp’s Aimee C. gives the same suggestion: “One of the best ways to increase the average deal size for SaaS offerings is to provide both à la carte and bundled pricing options.
Generally, while customers may only be interested in one or two core features, by bundling multiple additional features or services in one package, SaaS offerings can take a page from the playbooks of industries like cable television and insurance, driving incremental revenue from existing customers who are willing to pay a little more for access to features beyond what they initially wanted, but who would be otherwise unwilling to buy all the disparate parts à la carte.”
This approach has worked for Deposit Fix in the words of Denis Lunev from the company. Lunev says, “Our customers were asking us for additional support, integrations, and help with onboarding. We listened and introduced a bigger plan that would include all of that. This has doubled our growth rate for the next 6 months.”
Bruce Harpham from SaaS Marketing Services gives another example: “Selling these services makes a big difference for larger companies. Take Salesforce as an example – the company made $1 billion in revenue from professional services in fiscal 2020 (6% of total revenue). Selling a $5000 or $10,000 services package can make a big difference to your deal size!”
To recap, the SaaS average deal size is an important metric that can help you forecast your business’s revenue and determine your sales and marketing processes.
To boost your average deal size, you just can’t thoughtlessly increase your price or solely work toward increasing customer acquisition. Cross-selling and upselling to existing customers by nurturing relationships with them, providing them more value, and improving their experience with you are some ways you can grow your average deal size.
Not to mention, you can also increase your deal’s duration and offer discounts to increase you’re the average size of your deals.
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