Even if there’s headroom in your market for new logo bookings, there’s value in upsell and renewal execution.
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:
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.