To many, SaaS has always been tricky, and the current global economic downturn caused by the Coronavirus pandemic has only exacerbated it. However, most business leaders agree that the subscription model is inherently better suited to growth and profitability than the traditional way of selling services. After all, the very motive of these companies is to adapt to the situation, and further improve the overall performance through expansion selling strategies. Currently, SaaS companies appear to be under immense financial pressure, resulting in a dramatic increase in vendors seeking guidance on how to adapt, survive, and even thrive during this downturn.
The strong suit of the SaaS model is the generation of recurrent revenues. But recently, their customers have struggled with reduced budgets and an unpredictable economy. It is no surprise that discretionary spending practices lead customers to reconsider whether or not they need to renew or expand certain subscriptions. Since most SaaS companies started after the 2008 financial crisis, this is the first test of the sustainability of the model during the crisis.
SaaS businesses that thrive during this period not only retain their customers, but also sell more of their services to them. For these companies, any revenue lost to churn is recovered through the expansion of the customer.
We covered how to make renewals in another blog. In this one, we are going to focus on how SaaS companies can leverage their customer base to drive more revenue through expansion during Coronavirus.
The New SaaS Sales Environment during COVID-19
To learn how to sell more to existing customers, we need to understand the changes that have taken place in the SaaS scene. Acknowledging the changing sentiment in the current market will make for better strategies for approaching customers. It will also help strengthen customer engagement and better customer journeys throughout the crisis.
1. Fewer New Prospects
One of the main consequences of reduced spending is a reduction in the pool of new prospects. Less demand for solutions results in higher Customer Acquisition Costs (CACs) as it will cost more to find and sell a viable customer. Little wonder successful companies are now focusing on hardening their customer base.
2. Recurring Revenue Streams Are More Important Than Ever
The decline in new logo sales and the increase in churn have led companies to invest more in protecting their revenue base. SaaS companies are now turning to their customer success teams as client health, retention, and expansion of accounts become new priorities. This change in internal direction is beneficial to customers, as the success of the customer must be value-driven to ensure these outcomes.
3. Changing Customer Priorities
When customers subscribe to a solution, they have a set of business outcomes that they expect to achieve. Customer success teams set up customer journeys on the basis of their objectives to ensure that they are successful. The client focus of the pandemic has changed, and while they may retain their subscription, their priorities are likely to have changed in order to adapt.
As customers only buy what they need, they also hold suppliers accountable for higher standards. SaaS businesses that can understand and work with customers to achieve new objectives are more likely to retain and expand their accounts.
4. Overwhelming messaging
Buying power may have been reduced, but marketers are as active as ever. Many companies are also competing with Coronavirus related messages and discounts for your customer’s attention. This results in message fatigue and, in turn, low response rates.
5. The Shift to Remote Work
88% of companies recommend that their employees work from home to reduce the spread of Coronavirus, and more than 90% of B2B sales have switched to a virtual sales model, which can provide a lot of opportunities and challenges for sales and customer success teams. To be more successful, these teams must develop strategies to cope with communication, collaboration, and ongoing technical support, and adopt the right measures to track and measure performance.
Why Expansion Selling Matters Now
At the heart of the SaaS business model is the need to increase the value of customers over their lifetime. It is a key ingredient of long-term success and is more cost-effective than generating revenue from new customers. This could not be truer during the pandemic, where companies are crumbling, and acquiring new customers is a challenge.
1. More Customer Success
The massive benefit of devoting more resources to the expansion of revenue generation is better engagement with the existing customer base to drive customer success. Greater customer success increases advocacy and renewal, ensuring that both the seller and the customer remain profitable despite the crisis.
2. Reduced Costs
The Pacific Crest 2016 survey indicates that the median cost of acquiring an ACV dollar for new customers is $1.16. On the other hand, the median cost of acquiring the ACV dollar for plan expansions and upsells is only about $0.20 and $0.27, respectively. This is a significant difference, which shows that generating revenue from the installed base only costs about 17% of what it costs to acquire a new paying customer.
Since nobody knows that the crisis will last for a long time, saving costs while generating revenue has been a top priority for business leaders.
Expansion sales offer a way to do things both effectively due to the reduced costs of advertising, sales, and marketing. Ironically, 7 out of 10 SaaS founders and executives are obsessed with new customer acquisitions and net new growth.
3. Greater ROI
When customers expand their subscriptions or purchase additional services, they contribute more revenue each time they renew, which means that it takes less time for SaaS vendors to realize their Customer Acquisition Cost (CAC). A shorter payback period may be particularly beneficial for start-up companies that may be more dependent on customers’ revenue during that period.
Types of SaaS Expansion
There are three types of expansion selling plays you can make for your installed customer base:
Upsells are a basic form of account expansion. It involves selling a more expensive service level or additional features to existing customers to generate more revenue without creating new products. Vendors usually offer different subscription plans depending on storage space, the number of users, etc. Upselling is value-based; as soon as customers realize some value from a product, they are willing to buy more to achieve more success.
A typical example of successful upselling is Salesforce, which has recently surpassed $13 billion in annual revenue – the fastest to reach that milestone in the history of enterprise software companies. To achieve this, Salesforce focuses on the success of the customer and the upselling of the customer along the way. Instead of bombing clients with calls, they let clients discover the value of a higher subscription plan.
Other successful companies are also using a freemium model, where the core solution is free but with limited capabilities. When customers upgrade to more functionality and features, they count as upselling because they are not new customers. During Coronavirus, customers who have gained value from you will be more open to buying a more comprehensive solution or additional features if it helps them achieve more success.
Cross-selling occurs when a customer purchases a related product and includes it in their monthly subscription plan. New products usually cost less than when purchased by a new customer on their own. Cross-selling requires the provision of other innovative solutions in a different product category that can give customers more value in addition to the primary product offering.
An example of a cross-selling sales model is Adobe Creative Cloud, where most stand-alone products cost $20.99 per month, but all 16 products in different categories cost only $52.99 per month.
According to a recent SaaS Radar Report by Gainsight and Mckinsey & Company, mature SaaS companies ($25M-$75 M in revenue) that sold one-third of their customer base had the least churn. By resolving more business problems and increasing product stickiness, cross-selling provides a unique opportunity to address the expected rise in churn.
A bundle is a combination of upselling and cross-selling, where vendors offer two or more complementary products to provide customers with a wider range of solutions. Like upselling, bundling improves the products that your customers have already purchased and increases their lifetime value. Although it offers additional solutions, such as cross-selling, it differs from cross-selling in that it usually offers complementary products in the same category.
Who Should Be in Charge of Expansion? Sales, or Customer Success, or Analytics?
Like renewals, there has been a long-standing debate about which team is best equipped to manage account expansion. Needless to say, sales excel when identifying leads for new accounts, but this does not necessarily mean that they are best suited to renew or expand those customer accounts. A 2020 TSIA study found that the growth rate of technology subscriptions falls sharply when sales managers are responsible for renewals in their assigned accounts. We‘d argue that the same goes for expansion.
Analytics teams are good at using data to identify upsell and cross-sell leads, but they lack the level of relationship needed to close those deals. Customer success teams have first-hand knowledge of customer goals and a deeper connection to the customer base. These attributes make them the most appropriate team to close customers with additional solutions to make them more successful. The results of the TSIA 2017 upsell and cross-sell survey also showed that the Average Revenue Per Account (ARPA) growth almost doubles when customer success managers have primary upsell responsibility.
How to Sell to Existing Customers During Coronavirus
COVD-19 has radically changed the business scene, but customer success organizations can continue to expand customer accounts by working towards changing customer priorities. Even though customers are looking more closely at their spending than ever before, they are open to real conversations and helpful upgrades that directly help them deal with the crisis.
1. Be Empathetic
Empathy has to be at the top of your mind as you interact with clients who may have been affected in different ways. Sales and customer success teams must be mindful of the new reality of the customer and humane in all interactions with the customer. Framing your mind around what clients are experiencing helps you better identify their needs and plan how to approach expansion conversations.
- Aim to Connect
People respond to feelings before they respond to facts, and life is about connecting. Your customers, too, are people, and they can tell real sympathy from a mere attempt to sell a product. Choose to practice compassion, sympathy, and patience rather than exert undue pressure on customers to buy something that may be counter-productive at a time like this.
There is a lot of uncertainty clouding customer decisions, so when you get in touch with customers, you have to focus on connecting authentically. Ask and listen carefully before you tell or sell. Part of being empathetic is finding out how they have been affected to avoid sending tone-deaf messages to panicked customers. Not all conversations need to be about selling; a thoughtful note can go a long way toward establishing a much-needed connection that makes it easier to sell.
- Prepare to Help
As you connect to your installed base, focus on helping instead of adding to the noise. To sell customers, make sure your buyers have a real need for the product and add value to it. Focus more on the purchaser instead of the sale. Customer success has always been about helping customers to achieve their goals. Now is the time to be even more customer-centric in order to match customer problems with innovative solutions precisely.
- Adjust Your Offering
The pre-pandemic value may now be irrelevant. Customer needs have not only changed; they are constantly evolving as they cope with the downturn. Update your data and value proposition to statements that reflect the new priorities of your prospect. If an upsell does not add value to a particular customer, consider a cross-selling solution more helpful for better success. You can also reset your price points on the basis of the customer’s willingness to pay if it helps.
2. Research More
The pandemic has further diversified the installed customer base. There is therefore a need to revisit and rethink segmentation, buying power. The best way to be sympathetic is through in-depth research into the current situation of the customer. The combination of research data and insight gives teams an informed perspective. Instead of making assumptions, use preliminary research to determine what customers need and would buy without much conviction.
- Research by Industry
Have a better understanding of how customers in different industries have been affected by the crisis and identify their new collective challenges. However, don’t write off customers in entire industries because your customers may have also been pivoting their offerings. For example, shelter-in-place guidelines have had a negative impact on most restaurants, but some have turned to food supplies, more on-demand service at this time.
- Research Each Customer
Research customers individually to understand what they need to improve your accuracy. Take a look at their response from Coronavirus to see the initiatives they’re driving and incorporate them into your pitch. Capture direct user input and positively connect your solution to customer needs.
- Research Your Champion
Due to the historic number of layoffs, your champion may no longer be in the company. If they do, confirm that they are still the primary decision-makers. Dig deeper to re-qualify your leads, then equip them with the right information to sell internally and put you ahead of the competition.
3. Prospect Better
The effective means of prospecting during this period is to bring customers together and to provide relevant and useful resources. Highlight your most valuable features and find out what kind of customers can benefit from them.
- Content Marketing
Drive your prospects to meaningful content that supports their teams and monitor their involvement in identifying expansion leads. Customize your content so that it is informative, responsive to current landscapes, specific to customer needs, and highlight how your solution solves them.
- Webinar Marketing
Virtual events are great ways to bring together key leaders, discuss challenges, and demonstrate that customers can purchase additional features. Encourage your customers to share ideas with others and to see best practices. Webinars should deliver value in order to maximize high-potential customer relationships and convert to low-cost sales.
4. Train Internally
Clarify your new sales philosophy and share it across your customer success, sales, and other customer-oriented teams. Level up your sales talents, and help them develop customer intelligence. Build the confidence and sympathy needed to handle inbound leads properly at a time when they are scarce.
5. Create Expansion Offers
Consider unlocking a premium feature free of charge to customers who need it to realize how valuable it is. In the meantime, your cash-strapped customers may also benefit from time-bound or use-bound discounts. You can also reheat conversations with viable expansion leads that have gone cold at the onset of the pandemic and offer discounts or trials.
There is no doubt that times are difficult for SaaS customers all over the world and purchasing power is limited. The old ways and the old data are no longer as effective. Businesses that are expanding their client account have re-strategized towards sympathy and understanding of the new needs of the customer. They then set their best foot in the field by offering customer-specific expansion opportunities that ensure success during the pandemic.
Do you need help navigating the intricacy of expanding different types of customer accounts during this pandemic? Please contact us at CSM Practice to increase your profitability and ensure that your customer remains successful during this period.
How can CSM Practice help you optimize your upsell and cross-sell revenues?
At CSM Practice we accelerate SaaS companies’ profitable growth through customer retention and expansion selling strategies. Optimizing your upsell and cross-sell revenues is one of the answers to your success, hence, CSM Practice provides integrated strategies catered to your customers and your industry.
CSM Practice specializes in the technology and services industry, and offers a portfolio of enterprise solutions, that wish to achieve successful and scalable results. CSM Practice offers a particular customer-centered approach that helps you to develop a winning plan for the success of your client.
Take it to the next level! Ask CSM Practice about the services we provide and learn how we can help you transform your organization into success.