Enhancing Average Deal Size (ADS) in SaaS Sales

In Software as a Service (SaaS), understanding and optimizing financial metrics is key to driving growth and profitability. Among these metrics, Average Deal Size (ADS) stands out as a crucial indicator of sales performance and revenue potential. Average Deal Size measures the average revenue generated per closed deal and provides insights into sales efficiency and customer value. In this article, we'll explore the importance of tracking Average Deal Size, methods for measurement, and strategies to enhance this critical metric for SaaS businesses.

In this series of articles we are looking closer into 8 key metrics for Sales in SaaS businesses, and how to maximize Sales Efficiency. Last week we looked closer at Sales Quota Attainment, which measures the percentage of sales targets or quotas that a sales rep achieves within a specific period, such as a month, quarter, or year. Now the time has come to dig deeper into Average Deal Size.

The Importance of Average Deal Size

Measuring Average Deal Size is important for a number of reasons. It will give you a sense of how much you charge for your product on average, and by tracking Average Deal Size over time you can get valuable insight in whether you increase deal value over time or not. Considering you offer a SaaS product the product is continuously improved with new releases. These improvements have value for the customer, if it did not you would not pay a developer to work on it. In that sense, given you do not do any drastic changes in terms of which market segment you serve, the Average Deal Size should increase over time.

Tracking Average Deal Size across market segments can also give you input on where you are able to maximize value for your business. If you are focusing on several industries, you should expect the industries where you have to compete over customers to have a smaller ADS, and depending on the different segments and the corresponding CAC it could help you decide where you should double down on your efforts and where to scale back.

Average Deal Size can also be of importance when deciding your a go-to-market strategy. If the ADS is small (thousands) and is less than you Average Customer Acquisition Cost (CAC), it suggests you should focus on referrals, inbound sales and product-led growth as the math would probably suggest that it is hard to scale your sales department to reach the sales numbers you are targeting. The economics would most likely tell you that a small Average Deal Size makes it hard to grow your ARR while at the same time being profitable. Of course, if you have a land and expand strategy, you should not be scared over a small initial sale, however, this should then be reflected in your CLV:CAC ratio. If, on the other hand, you have a large ADS you could justify a large sales team with account executives and sales development representatives (SDRs).

Comparing the Average Deal Size to Average Revenue Per Account (ARPA) also gives some valuable insights. If the ADS is smaller than your ARPA this suggests that you target smaller accounts, or that the market do not accept higher pricing. This will give an immediate impact on your ARPA and it will diminish over time. In such a scenario, you should analyze the underlying driver behind the development. The other way around, if your Average Deal Size is larger than your ARPA, it suggests that you are able to take out higher price points, that your sales team has gotten better, or that you simply has moved upmarket.

Either way, tracking ADS is essential as it gives you important information on how you perform. Below we have listed a few areas ADS will help you:

1. Revenue Growth: Tracking ADS is essential for understanding revenue trends and forecasting future growth. Larger deal sizes contribute to higher overall revenue, making it easier to achieve business goals and scale operations.
2. Sales Efficiency: Higher average deal sizes often indicate that the sales team is effectively targeting and closing high-value accounts. This improves sales efficiency and maximizes the return on sales efforts.
3. Customer Value: ADS provides insights into the value that customers place on your product. Larger deals may suggest that customers see significant value in your offering, which can inform pricing strategies and product development.
4. Resource Allocation: Understanding ADS helps in allocating resources more effectively. It enables SaaS businesses to focus on strategies that attract and close high-value deals, optimizing marketing and sales investments. 

Tracking Average Deal Size

To effectively track Average Deal Size, SaaS businesses need to implement robust tracking mechanisms and analytical tools. Here are some common methods: 

1. Customer Relationship Management (CRM) Systems: Utilize CRM systems like Salesforce, HubSpot, or Zoho CRM to track deal sizes and other relevant sales data. These systems provide detailed reports and analytics to monitor ADS.
2. Sales Analytics Tools: Employ sales analytics tools such as Tableau, Power BI, or Looker to analyze sales data and calculate average deal sizes. These tools can offer deeper insights into sales performance and trends.
3. Manual Calculation: For smaller teams, manual calculation can be done by dividing the total revenue by the number of closed deals over a specific period. While less scalable, this method provides a straightforward approach to tracking ADS.

How you track Average Deal Size is not the most important, but rather that you actually do it. The data is already there for you to crunch to get the information you need to run a successful business.

Examples of Improving Average Deal Size

Average Deal Size can be improved in different ways.

One way is by encouraging upselling and cross-selling to increase deal sizes. For example, Salesforce offers a variety of add-ons and complementary products that sales teams can recommend to existing customers, increasing the average deal size. Creating bundled packages that offer more value to customers at a higher price point could also be effective. Adobe Creative Cloud bundles multiple software products together, providing greater value to users and increasing the average deal size. Repackaging your offers, however, requires proper analysis and project work to ensure you do not break anything on your hunt for glory.

Focus on acquiring and retaining high-value accounts that have larger budgets and higher potential deal sizes is also a way to improve Average Deal Size. Account-based marketing (ABM) strategies can help identify and target these lucrative prospects, but like any other marketing play it will take time before you see the results.

Strategies for Enhancing Average Deal Size

1. Value-Based Selling: Train the sales team to focus on value-based selling rather than just product features. This involves understanding the specific needs and pain points of customers and demonstrating how the product can deliver significant value and ROI.
2. Personalized Proposals: Develop personalized proposals for each prospect that highlight the specific benefits and value of the product tailored to their needs. This approach can justify higher pricing and larger deal sizes.
3. Tiered Pricing Models: Implement tiered pricing models that encourage customers to choose higher-priced plans with more features and benefits. SaaS companies like Zoom offer multiple pricing tiers, incentivizing customers to opt for premium plans.
4. Customer Success Initiatives: Invest in customer success initiatives to ensure that existing customers are realizing the full value of the product. Satisfied customers are more likely to expand their usage and purchase additional services, increasing the average deal size.
5. Contract Length Incentives: Offer incentives for customers to sign longer-term contracts. Providing discounts or additional benefits for multi-year agreements can increase the total deal value and improve ADS.
6. Incentivize Larger Deal Sizes: Design a compensation plan where sales reps are incentivized on deal sizes. This could be done by introducing an extra bonus in a jigsaw structure, or a higher rate for qualifying deals.

Jigsaw Commission structure

Conclusion

In conclusion, Average Deal Size is a vital metric for SaaS businesses, influencing revenue growth, sales efficiency, and customer value perception. By tracking ADS diligently, implementing targeted strategies for improvement, and focusing on value-based selling, SaaS companies can enhance their sales performance, maximize revenue potential, and sustain competitive advantage in the market. 

Remember to subscribe to our newsletter to get the latest news and updates from bentega.io.