Imagine being able to raise your monthly recurring revenue (MRR) without spending any money on acquiring new clients. Absence of brand awareness advertising. There is no effort or money spent generating or warming up new leads. Oh, and you'll see increased conversion rates. Your chances of selling increase by up to 14X in this situation.
You guessed it, right?
This year, expansion MRR—rather than new MRR—is obviously taking centre stage as firms' budgets become more constrained. Let's now investigate how a SaaS company can increase MRR and how its recurring billing software can support, enhance, and advance each of these tactics.
SaaS upsell vs. cross-sell tactics.
Expansion MRR is one of the most important sources of revenue, and it is driven through upselling and cross-selling. Many SaaS companies set a target rate of 20 to 30 percent, with greater numbers serving as pure rocket fuel for company expansion.
With a few significant variations, the core idea behind these techniques is to recommend pertinent things to the right individuals at the appropriate time.
Similarities
Upselling and cross-selling share many characteristics, despite the fact that they are distinct methods, and as a result, the phrases are frequently mixed up.
For instance, two sales techniques:
- cut customer acquisition costs by marketing to your current clientele,
- seek to offer existing client’s greater value (or a more complete service);
- are meant to raise LTV,
- can be started by the sales team, customer success team, or the consumer, and
It can happen on the pricing page, during a renewal, or at any moment during the client journey, however that may have other ramifications (more on that in a minute).
Despite their striking similarities, a few significant differences distinguish the two activities.
Key variations
- Cross-selling is the practise of offering customers additional features or related products in addition to their initial purchase.
- An upsell occurs when a customer upgrades or enhances their purchase of your goods.
- Consider of upselling as switching to a bigger, more expensive, or premium subscription package whereas cross-selling is promoting add-ons (at a greater cost).
- Cross-selling is a method of product development. To entice clients, you'll need to constantly create and test new features, functionality, and goods.
- Upselling, which involves persuading your clients to spend more money with you as their own businesses expand, is more of a sales and marketing strategy.
The growth of both you and your customers is correlated, which promotes loyalty and raises expansion MRR.
Why is MRR expansion crucial?
Expansion MRR is significant due of its associations with the following other essential growth-focused metrics:
- Client lifetime value (LTV),
- Customer acquisition cost (CAC),
- Customer turnover
It is common knowledge that selling to your current clientele is not only simpler and more profitable, but also less expensive. Because you've already acquired the consumer, there is no CAC.
Your customers are spending more money with you each month if your expansion revenue is growing because of upselling and cross-selling. Naturally, this ought to raise their lifetime value (LTV) and boost your bottom line, assuming they don't leave.
Cross-selling and upselling actually prevent churn, which is good news. Customers are resolving more of their issues if they decide to spend more money on premium goods or extra features. And with B2B SaaS, that implies that you are probably adding value across more of their business's operations.
Moreover, expanding MRR is a sign of
- Customer satisfaction and loyalty,
- revenue sustainability, and
- favourable reception to new features or products.
Of course, acquiring is necessary before upselling. So let's expand MRR becomes more significant as a SaaS business develops. This is as a result of the focus shifting to developing larger accounts and maintaining customer relationships. This process of growth naturally is called "land-and-expand."
The "land and grow" approach.
Whether you're aware of it or not, you're probably already using the land-and-expand tactic.
The idea behind land-and-expand is simple. It can be divided into four major phases.
- Attract new clients (this could be a paid sign-up, a sale, or even a free trial)
- Give happiness (blow their minds with your fantastic product features, support, and value)
- Strengthen your bond (assign customer success managers to strengthen relationships)
- Widen (leverage your solidified relationship to identify upsell and cross-sell opportunities to provide more value)
Depending on how each individual consumer utilises your product, you can decide how to expand. The goal is always to increase your monthly recurring revenue (MRR) by attracting new customers, earning their confidence, and gradually increasing the value of their paid services. Cross-selling and upselling them as soon as they sign up could have the opposite impact, eroding their trust and leading to churn due to irritation.
Expand for upsells and land.
There are several instances of effective "wild" land-and-expand methods. This strategy of scaling was completely mastered by some of the largest names in SaaS, including Slack, HubSpot, and product-led pioneer Zoom, who today generates annual recurring revenue (ARR) in the hundreds of millions.
Zoom, in the billions—more specifically, $4B ARR. Even though it is the fastest-growing SaaS firm ever, it only spends about half as much on sales and marketing as the typical public SaaS company does (25% vs. 50%). A large part of success could be ascribed to the product being the ideal response to issues from the COVID era. But, after the epidemic, it has continued to grow, with enterprise clients driving it forward at a perfect 123% trailing 12-month net expansion rate.
But how can you persuade a customer to give you more of their hard-earned money once you've already won their business? Particularly when customers are using a freemium version of your software.
With a trial period, you could restrict access to your product or particular elements of it. After all, opt-out free trials with upfront payment requirements have an appealing 60% conversion rate. A good example of restricted usage for freemium customers, who are upsold through automated in-app upgrade reminders, is Zoom's 40-minute meeting limit.
Moreover, upsells might develop gradually over time. The customer will require more capabilities as their business expands. This might imply a greater user base, more thorough reporting, or more sophisticated features available in the premium edition of your subscription product.
Getting users to see the value of your product is the key. Land one person, team, or department to maximise the spontaneous networking effect. The initial users will aid in spreading your solution around the company or among projects. After that, give the product more consideration at the account level (as opposed to the user level), and cultivate long-lasting connections with decision-makers so you can see additional upsell possibilities with their true business interests in mind.
Cross-selling with land-and-expand.
SaaS businesses that are focused on growth must constantly enhance their product to stay ahead of the competition. Cross-selling hence naturally fits into that procedure. Expansion MRR tracks the adoption and stickiness of new features after they are launched. Cross-selling becomes an integral component of ongoing product development thanks to the feature's new customers' qualitative input.
Although users frequently choose add-on products themselves, the burden typically rests with one of two crucial teams, which brings us to...
The conclusion
Cross-selling and upselling are crucial tactics to drive growth, in the end. Driving growth MRR is essential for the long-term sustainability of your company and requires a bottoms-up sales playbook that enables you to take full advantage of all cross-selling and upselling opportunities.
Work 365 is monthly billing service and SaaS subscription management for Microsoft partners to streamline quote to cash process.