Last updated on February 28th, 2025 at 12:41 am
Sales efficiency is one of the most important metrics that you need to optimize for if you are running a subscription business of any kind.
This applies to content subscriptions, membership sites, Software-as-a-Service (SaaS) products, etc.
That’s why today we are going to share three tips that can help you improve it.
What is Sales Efficiency?
Sales efficiency is a business metric that shows the sales and marketing costs required to gain $1 of recurring revenue.
Here’s how to calculate it:
- Add your sales and marketing costs for a specific time period
- Divide that by the amount of new revenue generated in that same time period
For Example:
Let’s say that in Q1 of 2022 you spent $2,500 on marketing and $2,500 on sales. This amounts to a total of $5,000.
If you generated $2,500 in new revenue during that same time period, then here’s how you can calculate sales efficiency:
5000/2500 = 2
This means that your sales efficiency ratio for Q1 of 2022 was 2 – you had to spend $2 to add $1 in new revenue to your monthly recurring revenue (MRR).
Needless to say, this is a terrible sales efficiency ratio, so you would need to improve it if you wanted to keep your business afloat.
Say, if you found a way to only spend $1 to add $1 in new revenue, your sales efficiency ratio would drop to 1 and the situation would be much more stable.
And if you managed to figure out how to pay just $0.50 for each $1 in new revenue, your sales efficiency would decrease to 0.5, which would put you in a great position to scale your business.
Note that a quarter is the shortest period of time for calculating sales efficiency.
While you can calculate monthly sales efficiency, typically there’s too much variation from month to month for that ratio to be meaningful.
Also, if you are looking to raise venture capital, you need to pay special attention to sales efficiency.
Investors want to know whether your business is scalable, so sales efficiency is going to be the first thing they look at.
Here’s how Ryan Floyd, the co-founding managing director at Storm Ventures, explains sales efficiency:
Sales Efficiency Tip #1: Create a Value Ladder Sales Funnel
We believe that the most effective way to sell anything online is the Value Ladder sales funnel.
It was created by our co-founder Russell Brunson who then used it to take ClickFunnels from zero to $10M+ in annual revenue in just one year (it’s at $100M+ now!).
This sales funnel has four stages:
- Bait – You offer the potential customer your lead magnet in exchange for their email address.
- Frontend – You offer the potential customer your least expensive and least valuable product or service.
- Middle – You offer the customer a more expensive and valuable product or service.
- Backend – You offer the customer your most expensive and most valuable product or service.
Ideally, you also offer a continuity program of some sort, meaning, a subscription product that generates recurring revenue.
We also recommend adding downsells, upsells, and cross sells to these core offers in order to maximize your revenue.
The reason why this sales funnel works so well is that it allows you to:
- Start the relationship with that person by offering free value
- Nurture that relationship by continuing to provide free value via email
- Build trust by providing progressively more paid value at each stage
Here’s how Russell explains it:
If you haven’t implemented the Value Ladder sales funnel in your business yet, then doing so will likely drastically improve your sales efficiency.
Fortunately, you don’t need to have an entire product line ready to get started – you can create a basic Value Ladder with just a lead magnet + a frontend offer:
- Create a super valuable lead magnet. What’s important is that it provides a solution to a problem that your dream customers are struggling with.
- Create a landing page for your lead magnet. It doesn’t have to be complicated – a simple squeeze page will do.
- Create an irresistible frontend offer. You can use your subscription product for this. Ideally, you should create a separate frontend product, though.
- Create a sales page for your frontend offer. Don’t use your pricing page for this. You need a proper sales page!
- Create an “indoctrination” sequence. We don’t recommend hitting the potential customer with a sales pitch the moment they give you their email address. Use this 6-email sequence instead.
- Start driving traffic to your lead magnet landing page!
This approach to selling online is much more effective than the usual “Here’s my product, now buy it” strategy of driving traffic directly to the sales page of your product.
We would also like to point out that just because you have a subscription business doesn’t mean that you can’t sell other types of products.
Say, ClickFunnels is a SaaS company, but we also sell books, online courses, events, etc.
This is one of the reasons why our co-founders were able to grow it to $100M+ in annual revenue.
Yet this approach appears to be extremely rare in the SaaS space – everyone seems to be completely focused on selling software.
But it doesn’t take that much effort to add ebooks, webinars, online courses, etc. to your Value Ladder. So why leave money on the table?
Sales Efficiency Tip #2: Add Upsells, Downsells, and Cross Sells to Your Core Offers
Once you have set up your Value Ladder, you can further improve your sales efficiency by adding downsells, upsells, and cross sells to each of your core offers:
Downsells
A downsell is an offer that you make after the potential customer has rejected your initial offer – it’s supposed to be a downgrade from it.
For Example:
If you pitch someone a subscription product and they aren’t interested, you can offer them a $7 info product as a downsell.
Say, if you sell productivity software, a $7 productivity ebook might work well as a downsell.
Here’s what you need to understand:
When all you have is that one core offer if a potential customer rejects it, you don’t have any other way to generate revenue.
But if you have a core offer + a downsell, then if the potential customer rejects the former, you can present them with the latter. At that point, you have nothing to lose, right?
That being said, note that sales efficiency deals with recurring revenue, while downsells are typically single-payment products.
This means that downselling won’t improve your sales efficiency directly, but it might help it indirectly via the principle of commitment and consistency.
Basically, if someone buys something from you, no matter how inexpensive it was, it makes them more likely to buy from you in the future.
So if you downsell someone a $7 ebook, that might increase the likelihood of them buying your subscription product in the future, therefore indirectly contributing to your sales efficiency.
Upsells
An upsell is an offer that you make after the potential customer has accepted your initial offer – it’s supposed to be an upgrade on it.
When it comes to subscription products, you can upsell by offering a longer subscription for a better price.
Say, if the potential customer is about to sign up for a monthly subscription, you can offer a yearly subscription with a substantial discount (at least 20%).
It’s probably safe to say that some people will take you up on this offer and go with the yearly subscription.
This is going to improve your annual sales efficiency because a yearly subscription contributes to annual recurring revenue (ARR).
Cross sells
A cross sell is also an offer that you make after the potential customer has accepted your original offer, but instead of being an upgrade on it, it’s complementary to it.
For Example:
If you sell productivity software, you can cross-sell a $7 productivity ebook with it.
Note how the same $7 ebook can work both as a downsell and as a cross-sell for your subscription product.
Also, there’s no law that says that you can only have one cross-sell, you can have several of them and present them to a potential customer in a quick sequence.
Just like downsells, cross-sells are typically single-payment products, so they don’t contribute to sales efficiency directly but they can help it indirectly.
Don’t Procrastinate on This!
If you already have your Value Ladder set up, we advise creating these additional offers ASAP.
You don’t have anything to lose:
- Worst case scenario: you’ll end up in the same place where you’d have ended up without them.
- Best case scenario: you’ll generate extra revenue.
If you aren’t downselling, upselling, and cross-selling, you are almost certainly leaving money on the table.
So add these offers to your Value Ladder. You’ll be glad you did!
Sales Efficiency Tip #3: Build Traffic-Generating Assets
Here at ClickFunnels, we love paid advertising, as that is the quickest way to generate traffic when you are just starting out.
However, you don’t want to stay reliant on it forever, which is why you should invest in building traffic-generating assets such as:
- A blog
- A podcast
- A TikTok channel
- A YouTube channel
- A social media following
…etc.
While there are different strategies that are specific to growing each of these assets, the key to success with all of them is the same – consistency.
The reality is that most people fail because they give up too soon, not because they weren’t aware of the latest marketing tactics.
That’s why we recommend implementing a productivity technique called “The Law of 100”.
Commit to publishing:
- 100 blog posts
- 100 podcast episodes
- 100 TikTok videos
- 100 YouTube videos
- 100 posts on Instagram
..etc.
Obviously, don’t do all that at the same time, pick one of these marketing channels to start with, then add more if you feel like you can handle it.
Your “100” goal will help you keep going when you feel hopeless and want to quit (e.g. you put in a ton of work into your YouTube channel, yet you are stuck at 342 subscribers)
By the time you reach that goal, you will probably have gotten at least some results, which will make it easier to continue.
At that point, it’s best to set another “100” goal to ensure that you remain consistent.
And just to be clear, we are not saying that you should start churning out low-quality content just for the sake of it.
The point isn’t that quality doesn’t matter – it absolutely does. But you can improve as you go. What’s important is that you don’t give up.
Realistically, it will probably take you 1-2 years to get these traffic-generating assets off the ground.
But once you do, your marketing costs will go down dramatically because you won’t need to pay for each and every click anymore – and that will improve your sales efficiency.
Want Russell to Show You How to Build Your First Sales Funnel?
Let’s keep it real:
Building a sales funnel from scratch can seem like a daunting task.
That’s why we created our 5 Day Challenge where Russell walks you through it step-by-step.
You will learn how to:
- Generate unlimited leads
- Create your first lead magnet
- Build your first sales funnel
- Create a simple 6-email follow-up sequence
- And launch your funnel
…in just five days!
So don’t hesitate.