Tomasz Tunguz from Redpoint points out that ServiceNow, one of the most valuable SaaS companies in the world, uses Land, Expand and Retain to describe their growth strategy.
He also points out that as a SaaS business grows, “the fraction of revenue from renewals and expansion outpace new bookings.” This means that the company has captured enough market share that it cannot meet its growth targets unless they renew existing business – notice ServiceNow’s high-90%’s renewal rates? And sell more to existing customers; their upsell as a percentage of bookings is consistently in the mid-to-high 30%’s for the period referenced.
So when should SaaS companies begin planning for this reality? Sooner than you’d think. Even if there’s headroom in your market for new logo bookings, there’s value in upsell and renewal execution. Remember the equation is New business + upsell + renewal.
Rather than solely focusing on the renewal and upsell transactions, there are some immediate steps SaaS companies can take to lay the groundwork:
- Review your pricing model – are there built-in pricing vectors such as users or transactions that can drive expansion?
- Review your product strategy – are there additional packaging options that can drive product upgrades?
- Review your customer engagement model – are customers seeing value from your product quickly after purchase? How do you measure their health and engage after onboarding?
- Review customer feedback and usage patterns – are customers engaging routinely with the most valuable parts of your product? What issues are they having? What unmet needs do they have?
Renewals are earned over the life of the contract, not in a 30-day renewal negotiation period, and upsells can only happen to customers you have. The ability to execute an expansion strategy doesn’t happen by accident.