As you probably already know, new logo acquisition is the most expensive way for most companies to generate revenue, and it’s much cheaper to close an upsell. Based on research by BVP and as a general rule of thumb, the average cost to acquire $1 of new ACV was $1.13, while the average cost to upsell $1 to an existing customer was less than 30 cents.
Upsells and cross-sells are also the reason why the most efficient SaaS companies have net retention scores over 100%. In fact, the top 20% have net retention scores of over 120%. Net Revenue Retention (NRR) is a powerful metric that helps SaaS companies measure their ability to retain and grow revenue from their existing customer base, and the general formula to track NRR is as follows:
NRR = ((Revenue at the end of the period - Revenue lost due to churn) + Revenue gained from upgrades and cross-sells) / Revenue at the beginning of the period
So what does it take to drive more upsells (and lower churn), leading to a stronger NRR?
Here are four things to focus on:
First things first: understand pain points and measure customer success
The best way to get to know your customers better is to collect and analyze data. This can include information about their usage patterns, feedback, and preferences. Companies that are measuring customer success correctly generally see better retention and can create targeted upsell offers that are more likely to convert.
One of the best ways to measure customer success is to evaluate how many other people the customers have recommended your brand to. Hence, the importance of continuously measuring the Net Promoter Score (NPS). To help design a solid foundation for measuring NPS, Savant Growth recently hosted a Customer Success webinar series together with Richard Owen, who was one of the early pioneers of the NPS framework.
Reducing customer churn and increasing NRR are top priorities for SaaS companies, and it just so happens that churn and expansion revenue are the two core drivers of NPS. It’s a match made in heaven.
Here are my 5 favorite metrics:
- Net promoter score (a typical range for SaaS 28-55, anything above 55 is excellent)
- Gross churn rate (less than 10% is best-in-class)
- Customer satisfaction score (CSATs are typically above 4/5)
- Average time on the platform (this one is more subjective as it heavily depends on the product and user, but it helps to focus on the ones that show churn risk)
- ACV and lifetime value
SaaS companies should start by collecting and analyzing customer data to identify the features and services that will provide the most value to their customers. One way to do this, which works well for SMBs, is to use personalized messaging, which can be done through email, in-app widgets, or other channels. Companies focused on $25k+ deals are usually better off doing personalized demos. When focusing on big-ticket deals ($100k+), it’s always worth getting your head of product involved, as it’s a great way to learn about specific pain points. They can then use this feedback to create personalized upsell offers and potentially new features.
Determine whether you handle upsell with CSM, Sales, or a dedicated Account Management team
Upsells and renewals are usually handled by the CSM team. This works well for SMBs when you are selling more of the same product to the same people. When you move up to larger ACVs and more complex sales processes, it’s usually an AE who owns the relationship and is best positioned for upselling. However, in scenarios where an inside sales rep closed a $20k ACV deal within a local division of a large corporation, that same rep may not have the skills needed to close a $1M company/country-wide deal. Even though he’s selling the same product, the buyer's persona is very different, and it usually involves complex C-level negotiating. In those scenarios, it makes sense to have some heavy hitters and a dedicated account management team that can appropriately target existing accounts top-down.
Understand conversion
Combining data from new sales and upsells often leads to inaccurate sales forecasts, conversion funnels, win/loss analyses, and retrospectives. This is because new logo sales typically take more time, cost more to close, and convert at a lower rate. Using blended metrics without separating new sales and upsells does not provide insight into your new logo sales funnel or your upsell sales funnel. Therefore, it is important to set different goals for new opportunities, conversion rates, time to close, and cost to close once you have determined who is going after upsells.
Timing is key
Once you’ve figured out all the above, you need to make sure your timing is right. SaaS companies need to identify the right time to make their upsell offers so they don't come across as pushy or intrusive. One effective way to time upsell offers is to use triggers. Triggers can include things like a customer reaching a usage threshold or showing interest in a specific feature. Companies can use these triggers to present upsell offers at the right time, increasing the likelihood of a successful sale.
Successfully driving more upsells can be challenging, but the results are worth the investment. Start by tracking the right metrics to identify customers' needs and pain points; get the right team in place to focus on upsells; and make sure you have the right incentive structure that aligns with deal sizes and conversation rates. Go get them!
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Rev up your revenue with Savant's Upsell Accelerator Program!
At Savant Growth, we understand the importance of upselling and offer a comprehensive accelerator program to help SaaS companies maximize their upselling potential. Our program includes:
- Coaching from experienced Customer Success and Growth experts
- Design of a successful NPS program to improve retention and identify upsell opportunities (click here to download Richard Owen’s presentation on NPS)
- AE/AM team modeling and advice on quota, OTE, and commission structure
- Ongoing support and resources to help you achieve your upselling goals
Don't miss out on the opportunity to grow your revenue and maximize profits through upselling. Get in touch with one of our mentors to learn more about our Accelerator program and find out how you can leverage your existing base to drive more upsell and improve your NRR.
