What is a Product Demo and Why is it important in B2B SaaS?
The product demo, or sales demo, is the most critical piece in the sales process of a B2B SaaS company. It’s a unique opportunity to demonstrate the value of your product to a prospective customer.
Product demos are central to any software sales process. Poorly executed demos significantly slow down close rates. On the other hand, if done right, they can be very effective.
In essence, the demo often means the difference between closing a deal and losing a prospect. A great demo lets your prospects understand how your solution truly solves their pain points and enables them to become more successful in their job.
As Geoffrey James says, “There is almost nothing more powerful than a great product demonstration. When done correctly, a demo allows the customer to see and feel how things will be better if they buy (and worse if they don’t).”
Why is the demo such an important element in the B2B sales process? And what’s the impact of getting it right or wrong? Before we dive into the details, let’s first set a common ground and clarify the basics.
What is a product demo?
A product demo is a presentation of the value of your product or service to a current or prospective customer. It typically involves a demonstration of core features and capabilities. The primary purpose of the demo is to close a deal.
What is the difference between a product demo and a sales demo?
In a nutshell, it’s the same thing. Other words being used are: product demonstration, SaaS demo or just ‘demo’.
But depending on who you ask you might get a different answer. Hubspot for example clearly differentiates the product demo from the sales demo “A sales demo is the process of providing a prospect with a demonstration of your product or service. A product demo is the same process but it involves a current customer.”
Most SaaS sales leaders including Steli Efti, Jacco van der Kooji, Peter Kazanjy or Craig Rosenberg always refer to the ‘demo’ as a key sales tool – that is the presentation for a prospective customer – not differentiating between product demo and sales demo in particular.
Who delivers a product demo?
In most companies, the sales rep – or more specifically, the account executive – is delivering the demo. In small companies and early-stage startups, it’s often the founder who is running the demo.
When do you deliver a product demo?
The demo typically occurs after a lead has been qualified. There are many different ways to generate leads. But for most B2B SaaS companies, the inside sales process looks very similar:
- Lead generation: You get a lead, either inbound or outbound
- Discovery: You qualify that lead, i.e. verify if he/she matches your ideal customer profile
- Pitch: You demonstrate the value of the software to the prospect. This is when the product demo happens
- Conversion: You convert the opportunity, i.e. close the contract
For those who are new to inside sales, here is an example: Someone visits your website, i.e. a visitor. This visitor fills out a contact form because she is interested in the product or service that you are promoting on your website, i.e. a lead. You analyze the information that you have about that lead like industry, company, role, location, need for your product or service and authority to purchase amongst others. If the lead matches your ideal customer profile she becomes a qualified lead. After you have conducted a demo with the qualified lead, she becomes an opportunity. The final step is to convert that opportunity by providing her with additional resources and finally navigating her to sign the contract to become a customer.
Here’s a nice graph that visualizes the inside sales funnel.
How to deliver a demo?
The face of B2B software sales has been undergoing a massive shift from traditional field sales to inside sales over the past decade. Today, the dominant sales model in B2B tech is inside sales: sales that are handled remotely using the phone, email, and online meeting tools.
In most cases, SaaS demos are delivered via online meeting tools, utilizing screen sharing, audio, face-to-face video, chat and more.
Many companies are still using general-purpose online meeting tools like GoToMeeting, Zoom or Hangouts. There is a new generation of online meeting tools arising that provide use-case specific advantages over general tools – like Demodesk for demos and onboarding. Features are real-time sales assistance, automated scheduling, CRM logging and many more.
Why is the demo so important in the B2B SaaS sales process?
The importance of the product demo in the sales funnel depends on different factors.
The biggest driver is the ACV (Annual Contract Value). It is defined as the average annualized revenue per customer contract, excluding one-time fees.
Of course, there are more criteria to take into account for choosing the right sales model, but as a general rule, for an ACV of <$1K, it typically makes no sense to jump on a personalized product demo with your prospect.
Why? Because delivering a personalized demo is costing you resources. It is a significant investment that you make in your prospective customer. It only pays off if the potential return is high enough.
Like Clement Vouillon says, “Your SaaS sales model should aim at self-service. You need to build a frictionless product coupled with a high volume, high velocity, and low-cost lead generation engine. The transactional model is a hybrid one as it requires a high volume, high-velocity lead generation engine, but you can spend more on acquisition thanks to a higher ACV (typically >$3K), complemented by an inside sales team that will do product demos and close deals.”
So, if you have an average ACV of more than $1K, the demo is without a doubt the most powerful element in your sales process, and here’s why.
How do product demos improve close rates?
Mastering the product demo is no easy task. It requires a proper understanding of the product you’re selling, the customer you’re talking to, her specific challenges and expectations, and the ability to build rapport.
As Robert Falcone puts it, about 10% of your demos will go great regardless. Either you’ve worked with the person before, or the room just groks what you say the first time. Another 10% will go bust no matter what you do. You’re presenting the wrong solution to the wrong crowd. It’s not worth dwelling on and deriving lessons from this batch because they would have gone south no matter what. But then there’s that 80% in the middle where you make most of your money and where you need to win.
So for that 80% of customers, it makes a huge difference whether you’re delivering a great demo or not. In many cases, the demo is decisive for the overall success of the company. Let’s do the math to explain the financial impact of mastering your product demo on sales growth.
Here are some statistics for B2B SaaS companies according to a comprehensive SaaS survey that David Skok and KBCM Technologies did:
- The average number of demos held by a SaaS company varies by deal size, ranging from 4 to 11 per week
- SaaS companies with an ACV of <$5,000 perform on average 11.3 demos per week.
- For an ACV above $100K, the average number of demos held is as low as 3.6 demos per week
- The median annual contract value (ACV) of private SaaS companies is ~$21K, with 26% of respondents below $5K and 13% above $100K
- For most B2B SaaS companies, demo close rates range between 20% and 50%
Let’s now take the statistics from above to calculate the impact of mastering your demo.
When conducting 7 demos a week, assuming an ACV on $21K, you have a potential deal flow of 7 times $21K per week.
In our example, that amounts to $147K a week in opportunity value, which sums up to $7.6M in annual terms.
When your sales team is on the lower performing end with 20% demo close rates, that results in $1.5M potential sales generated.
In contrast, a high performing sales team with average demo close rates of 50% generates $3.8M in annual sales opportunities.
That leads to a difference of $2.3M. So for an underperforming sales team, that’s a potential loss of $2.3M. In other words, for an average B2B SaaS company, the impact of improving demo close rates can be a sales increase of more than 50%.
Here’s the formula if you want to calculate the impact of improving demo conversion rates for your company:
(50% – Your current Demo Close Rate in %) * ACV * # of Demos/Week * 52 = Annualized Sales Opportunity Loss
How to master the product demo
Mastering the demo is for sure not an easy task. A successful SaaS product demo is more than explaining the value proposition, giving a walkthrough, and positioning your product against the competition. Salespeople need to adapt to the prospect’s needs and show how your product helps them solve their pain points.
And above all, it’s an opportunity for prospects to get to know you and assess how reliable your product is in providing the value. Personalized product demos are a great chance to create a relationship with your potential customer. After all, 71% of customers buy because they like, trust and respect the salesperson they work with.
“Contrary to popular opinion, the primary goal of a demo is not to demo your product! Let me say that again: the goal of the demo is not to demo your product. People don’t buy features, they buy solutions, trust, and relationships. ” Rob Gonzales
So what is it, that makes an outstanding product demo? There are multiple things to learn and consider and there is for sure no one-size-fits-all approach.
We will help you master the demo without going through countless painful trial-and-error iterations. We’ve compiled all best practices and industry standards in one comprehensive SaaS demo guide. Read more about it in our next chapter.