449: How to Know If Your Conversion Rates Are Good?

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Steli Efti: Hey everybody. This is Steli Efti.

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Hiten Shah: This is Hiten Shah.

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Steli Efti: Today on The Startup Chat we’re going to explore the question, “Are my conversion rates good or bad?” This is the setup for this episode. I was talking to a marketer, and he was telling me about the SaaS company that he works for. He was telling me about the current conversion rates that they see from traffic to trials, and from trials to paid. He was asking me basically, “Are these conversion rates good,” to which of course I said, “I don’t know. It depends.” Right? How much did it cost to get this traffic? How much traffic are you getting? How long do these customers stay versus churn? How much does it cost to service these … I mean it’s a complicated question. As I was going through this with him, at some point he was like, “Yeah, but aren’t there benchmarks? Where can I go to get 2019 benchmarks for SaaS companies, or SaaS companies in my vertical industry, or in my country? There must be some place where I can just look at what do other SaaS companies get to have some kind of an idea if this is good or bad, or how much worse or better I fare?” I had to tell him, I was like, “Yeah, I’m sure there are some studies of some stuff, but I don’t have this on top of my head. I don’t really know. I haven’t looked into this.” To which then that marketer said, “Well, why don’t you bring this up to Hiten? I’m sure he has good answers. You guys should do an episode on this. I think I’m not alone with this kind of predicament or challenge.” So here we are Hiten, and this is a big call out and props to all The Startup Chat listeners. We listen back to you, and any time you guys send us an email, steli@close.comm, hnshah@gmail.com, or you tweeted us, or you come up to us in person at an event, conference, or anywhere else, coffee shop, where you see us, we love the suggestions, and we always try to make it happen for you. So any time a listener tells us, “Hey, wouldn’t this be a great topic for an episode? I’d love to hear this,” we try to make it happen. So here we go Hiten. This is the mandate I was given, and hereby I offer you the big question, “What the fuck should be my benchmarks, and how do I figure this out as a marketer in SaaS in 2019?”

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Hiten Shah: Everybody wants to know what the benchmarks are. Everybody. It’s just like, “Hey, what are my benchmarks? Well, what should I be aiming for? What should I target?” There’s a lot to unpack when it comes to this because you’re talking about things like, “What should the sign-up rate be on my homepage? What should my conversion rate be if I have a free trial with no credit card upfront, what percentage of people should pay? If I have a free trial with a credit card upfront, what percentage of people should pay? If I have an ecommerce site, what percentage of people should I expect to buy?” I mean, yeah, there’s ranges for all of this stuff. There’s ranges for all of this stuff, and you can almost drive yourself nuts trying to find all this information, and being like, “Okay, these are the ranges I should be in.” Then you might go after those ranges, and what you’ll realize is that they don’t matter. They don’t matter because you could go after those ranges, but if for whatever reason your business isn’t set up so that those ranges will lead you to a profitable business, those ranges don’t matter. It doesn’t matter if they say, “Fifty percent of people who sign up for a trial should convert to a paid plan.” If one, you don’t have 50%. Two, if you have 50%, your business is still not viable at that level. Like you can’t make money, or your margin’s high. So I think the conversion rates, and the way everybody thinks about it in general about finding these benchmarks, is like looking outside yourself, if I were to get a little spiritual on you. I would look inside your business, not outside your business. Any benchmark is outside your business. Anything that’s inside your business, here’s what I mean. You have a funnel. You have a certain conversion rate for everything. Even if it’s things like, “What percentage of people that we email get on the phone with us?” Right? Yeah, there’s benchmarks. You should make it so that you have as high of a percentage as possible. There’s some general benchmarks that people say, whether it’s like 10%, or 20%, or 5%, or whatever, and you’re aiming to get better and better at it. The thing is, there’s so many variables, like particularly there’s variables like, “What’s in the email? What are you sending these people? Is it a problem they actually have? How painful is that problem?” There’s just a number of these things that come up when you start thinking through this, and you’re like, “There’s so many variables. How do I even make sense of any of this in a way where I can justify knowing a benchmark, or justify that I should go after this benchmark?” So what I like to do is, benchmark yourself. Find your baseline, find out how things are right now, and then based on that, go decide what kind of changes, what kind of improvements you want to make. That’s what I would be doing. That has a lot to do with knowing, not what those benchmarks are that are out there about all these different conversion rates, but really knowing where you’re at today, and what you think you need to get to in order to make your business work. So if you’re spending $100 to get every signup, your product costs let’s say 50 bucks, and so a signup costs 100 bucks, your product costs 50 bucks, it’s obvious that you’ll never make money. Okay? Because not everyone’s going to pay for it after they sign up, and it costs you a lot of money to sign up. This is what I mean. I could tell you that “Hey, if half the people pay, you’re good,” but that’s just not true. Because your own unit economics, the math in your business of how much it costs to get people to sign up, your customer acquisition cost to the amount of money that you make from them either on first purchase or their long-term lifetime value, might not map out. The other thing I’ll say to this is, typically people do a lot of what I would say “optimizations” that are going to work, but are optimizations. What I mean by that is, if you ask for a credit card upfront versus no credit card upfront, in theory more people will come in. I mean not in theory. More people are likely to sign up for your product if you don’t have a credit card upfront, but that does not necessarily mean more people are likely to pay. Another example would be, if you have a free trial, and it’s 14 days, and again no credit card up front, and they put in a credit card later, what’s the difference between a 14-day and a 30-day, or a 10-day, or a 7-day, or even a 60-day trial? I don’t know. You don’t know either most likely. So those are all the kinds of things you can test. All those things impact, well obviously how fast people pay because these are trials, but two they also impact the conversion rate to people paying. Some products a 60-day trial is better than a 30-day trial. Other products, a 7-day trial is better than a 14-day trial, and some of the stuff you don’t know. In other examples it’s like, “Well, is a timed trial like 7, 14, 30, 60 days better, or is it better to do a usage-based trial where they get some amount of usage for free, and then they convert?” Even as of this writing right now, if you go to Basecamp’s pricing page, they just introduced a free plan that they didn’t have forever. Now they have a free plan. They had one a long time ago, and they call it “limited but free”. It’s built for freelancers, students, families, personal projects, and light use. Three projects, 20 users, one gigabyte of storage space, and this is new. They didn’t have this plan before. Then their other plan now they’ve just consolidated into a $99-a-month plan. They’ve experimented with 30-day trials, and 60-day trials, and things like that in the past. They’re now on a 30-day trial. It’s really interesting. These companies that are doing this the best are tweaking all these things constantly as the market changes, as they learn, as they do A/B tests, and things like that, that I would just not get hung up on benchmarks, and would focus on, “What is happening in your business, and what do you need to change about it, or what do you want to test about it to make better things happen?”

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Steli Efti: Beautiful. Enough said. There’s nothing really much to add to this. This is exactly what I wanted to happen here. So there you have it SaaS marketers, and really anybody. This applies to almost any business there is. Beautiful. This is it for us for this episode. We’ll hear you very soon.

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Hiten Shah: See yeah.

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