This is Part 2 of a 3-part series on how to build a Behavior-based conversion strategy for your SaaS product. Here is Part 1.
This post was a lot of fun to write – I hope you enjoy learning from the insights as much as I did.
In a previous post, we analyzed conversion data from 9 SaaS companies and concluded that optimizing conversions based on behavior is more effective than using an X-day trial for every customer.
IOW, starting the same 30-day trial for every new customer isn’t as effective as varying the buying incentives based on what the customer has done – what we call a behavior-based conversion strategy.
3 steps to begin a SaaS Behavior-based conversion strategy
30-day trials are a great way to start a SaaS company. They are easy to setup and the trial expiration creates a “buy now” urgency. But using the same 30-day trial for every customer isn’t as effective as putting
… the right purchasing incentives to
…… the right customers at
……… the right time.
In Part 1 I described the 3 small changes required to get started.
- Don’t begin a timed trial until a customer completes Activation events – those a trial customer must complete or they won’t convert.
- During the trial use marketing and sales to get customers to complete Engagement events – the key value-creating used by most of your customers.
- Create early conversion and upsell incentives for customers who complete Acceleration events – “delight” events which indicate customers are getting tremendous value from your product.
Activation events are “NECESSARY but NOT SUFFICIENT” – customers who don’t complete them don’t buy but completing them doesn’t lead to a conversion.
Engagement events are “NECESSARY and SUFFICIENT” – customers who don’t complete them don’t buy and completing them increasing conversions.
Acceleration events are “SUFFICIENT but NOT NECESSARY” – customers who don’t complete them might buy anyway and completing increases conversions.
In this post I’ll cover how you can find Activation, Engagement, and Acceleration events and build your Behavior-based conversion strategy around them.
Use the Behavior conversion matrix to find your Activation, Engagement, and Acceleration events
The Behavior conversion matrix will help you instantly identify these events based on how your customers are actually behaving.
First let’s use your data to categorize events based the theoretical “Necessary” and “Sufficient”.
Categorizing “Necessary” and “Sufficient” events in your data
Identify ~50 relevant boolean customer events and calculate the following:
- The percentage of time the customer DID the behavior and converted to a paying customer. This is the probability of conversion if TRUE – the degree to which an event is “Sufficient”.
- The percentage of time the customer DID NOT do the behavior and converted to a paying customer. This is the probability of conversion if FALSE – the degree to which an event is “Necessary”.
(I’ll show you step-by-step how to calculate these in Part 3 of this series)
Here is a summary of how these conditions relate:
Create the Behavior conversion matrix by calculating event probabilities
By taking every customer event and calculating these probabilities we can now identify which ones are Activation, Engagement, and Acceleration events. This is most easily illustrated with an example.
Imagine a SaaS small business accounting application. Most customers use it for basic expenses tracking and reporting. The most valuable customers also find and hire a tax accountant through the application.
We can calculate the conversion probabilities for each event as follows:
Which can be plotted in a bubble plot as follows:
On Average, 3.1% of all trial customers convert to paying customers. The Behavior conversion matrix allows us to see how different events relate to the Average.
signed_up is – not surprisingly – the simplest example of an Activation event. A customer who doesn’t sign up can’t possibly pay, but since every customer signs up the event doesn’t improve our chances of converting. Thus the probability of converting if signed_up == FALSE is 0, while probability of converting if signed_up == TRUE is 3.1% – the same as the Average user.
connected_bank is a more interesting Activation event. Very few customers who don’t connect their bank to the application convert – perhaps they love entering data by hand for some sadistic reason – but taking this step doesn’t improve their conversion rates.
entered_expense is an Engagement event. A customer who doesn’t complete has <1% chance of converting while those who do are 4x likely to convert (12% / 3.1%).
hired_accountant is an Acceleration event. Customers who find an accountant through the app will almost definitely buy, but those who don’t still often will.
Accelerating SaaS Sales with the Behavior Conversion Matrix
Identifying your most important conversion
After plotting dozens of events your Behavior conversion matrix will start to look like this:
The most important events are those distant from the Average User Baseline – you will get the most impact by organizing your onboarding around them.
In 3 Steps – from 30-day trial to Behavior-based conversions
Suppose our simple SaaS accounting app currently starts all customers on a 30-day trial at signup. Here are a few simple changes to implement Behavior-based conversions.
- Begin the trial after the customer completes Activation events
Continue to nurture a trial customer until connected_bank is TRUE and then start the 30-day trial – until he takes that step he isn’t in a position to buy. He doesn’t know the value of the product and a trial expiration won’t create a “buy now” incentive. Connecting a bank account to the app is a Necessary but NOT Sufficient event for conversions.
- Create incentives to complete Engagement events during the trial
During the trial use marketing automation and inside sales to get the customer to complete entered_expense. Offer workshops on cost accounting or have Customer Success reps help them choose expense categories. Offer trial extensions and continue to convert these customers for up to 6 months following trial expiration. Entering an expense is a Necessary AND Sufficient event for conversions.
- Create early conversion and upsell incentives for customers who complete Acceleration events
Upsell customers to an annual plan or offer early-conversion discounts after the event hired_accountant. These are the most promising prospects and many will convert early. Hiring an accountant is NOT Necessary but is a Sufficient event for conversions.
In Part 3 of this series I’ll walk through a complete end-to-end example showing how derive the probabilities above. We plan on releasing it in mid-April – if you would like to see it sooner please tell us on Twitter or comment below.
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Photo credit: Timothy Neesam