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Customer Growth and Renewal

Why Having a Customer Expansion Strategy Matters

When No One Owns Customer Expansion, Everyone Loses

4 min read
By Steve Frost
TSIA’s LAER (Land, Adopt, Expand, Renew) customer engagement model has become an industry standard and helps our members organize and build capabilities around the key motions of the customer lifecycle. For three-quarters of the letters in that acronym, the responsibilities are generally pretty clear-cut. Sales handles LAND and brings on new deals. ADOPT is clearly the realm of Customer Success. Much focus has been placed on RENEW recently, and that function is now largely handled by Customer Success or dedicated renewals teams.

But what about EXPAND? Who handles upsell opportunities when they arise? TSIA research shows that this is often a giant, gaping hole in our members’ sales coverage models. This problem becomes even more pronounced in as-a-service models, where as much as 80% of the lifetime value of the customer will be realized after the deal is initially landed. 

If you don’t have a specific plan to expand your customers once they’re on board, then you’re missing out on a fantastic growth opportunity. Frankly, you may never hit your growth targets if you can not solve for the expansion gap. And, as you’ll see, a lack of expansion will definitely impact your ability to renew the customer. Every group within your company benefits from customer expansion, including the customer.

What Classifies as an Expansion or Upsell Opportunity?

Upsells can be a real black hole in your sales engagement model. When we talk about upsells at TSIA, we’re really defining them as add-on opportunities that come from the same buyer and same budget as the original deal. Examples include:
  • Sale of additional licenses or capacity
  • Sale of additional product modules or XaaS capability or functionality 
  • Upselling to Premium Offers
  • Value-Add Services
  • Education Services / Training
  • Migrating existing customers to new XaaS or Managed Services offerings
As you’ll notice, none of these types of sales are particularly complex or difficult. Most of the time, they meet the STAR Protocol that TSIA prescribes for effective upsells: Simple, Transactional, Repeatable and Analytics-Driven. But who should handle them? Sales, Customer Success, or someone else? Let’s look at that for a minute.

Why Sales is Not the Right Team to Own Upsells

If your sales executives are responsible for closing all commercial transactions, then you know who has responsibility for closing upsells.  But that doesn’t mean they’re getting it done. TSIA research is very clear: account executives won’t pay attention to an upsell unless it’s greater than $100k USD, and the real threshold to get their time and resources is more like $250k USD.  The problem is that the average transaction price of the types of upsells listed above is less than $50k. So, if sales is responsible for these upsells then chances are they don’t get executed upon.  

The other side of this dynamic. When sales executives are chartered to handle all sales transactions no matter what size or complexity, TSIA research shows that topline revenue growth for the company actually goes down double digits relative to a specialist approach.  

Wait a minute–did we say that having Sales own all sales transactions causes overall revenue growth to go down? YES. So why on earth would we have our most valuable selling resources forced to be the primary owners of 50K expansions and renewals when they could be closing complicated, high-value deals?

How Expansion Contributes to Customer Satisfaction and Renewal

Not only is there a loss of revenue when we don’t have the right engagement models (those smaller opportunities really add up), but it can be a real issue for customer satisfaction and retention as well. If your customer isn’t using the right offering, needs help or training, or could benefit from being on your cloud platform, then getting them to spend a little extra money to get to the right solution is absolutely the right thing to do. It’s why TSIA has a core mantra of “Helping will sell. Selling won’t help.” The Customer Success Manager has 8 to 10 times more conversations with customers on a daily basis. They know the customer's pain better than anyone, hence they are the perfect resource to identify value gaps and help move the best next solution towards the sales process.

But even more importantly, expansion and renewal go hand-in-hand. The more tightly these two motions are connected, the more effective our members are at both. The more independently they operate from one another, the more both metrics suffer. 

TSIA research shows that the number one predictor of success in renewals is the ability to close midterm upsells, meaning the customer expands their spend with you at some point between the initial launch and the renewal. If you or your team has renewal responsibility, one of the best ways to improve your renewal rates is to focus on growing your customers before it’s time to renew.

Keys to Building a Customer Expansion Strategy 

  1. Find someone who actually cares about the upsell. That $40k deal might not mean a lot to your sales executive, but it will be a priority to your inside sales team, who has a smaller quota. Much of upsell effectiveness is getting  an expansion deal to someone who will spend the cycles on it to bring it to closure. In some cases that might be a channel partner, who would love the opportunity to enter into a commercial relationship with the customer, no matter how small it might be.
  2. Involve Customer Success. Just four years ago, it was a rare practice for Customer Success teams to be involved in the expansion process. But now, it’s increasingly common. If upsells lead to customers actually being successful with your technology, then they should be driven by Customer Success. TSIA has seen that when Customer Success is primarily responsible for upsells, subscription growth rates, and renewal rates, they increase substantially.
  3. Make the juice worth the squeeze. Whether it’s sales, partners, or customer success, you can help drive upsells by making them easier to sell. Members who have offers designed specifically for upsell see a seven-percentage increase in Average Revenue Per Account. Don’t make upsells a big, customized, highly bespoke sales opportunity. Just keep them basic and straightforward. If you can make them easy to close, then Customer Success Managers may be able to complete the sale, or sales will be more likely to take on upsells because the reduced effort is worth the reward. And Customer Success Managers and partners will have a much better chance to articulate the value of your opportunities and drive them to closure.

What A Successful Customer Expansion Strategy Looks Like

Overall, a good customer expansion strategy is a dedicated, targeted approach that is aligned with corporate strategy. It will include KPIs that measure what is important towards achieving the strategy, be guided by best practices and policies, and rely on clearly-articulated organizational engagement models to direct the players on what to do and when to do it.

Lastly (not first), establish targets and compensation plans that are rationalized across the players and promote desired behaviors. The benefit of closing these small upsells far outweighs the monetary value, as they are critical for driving customer outcomes and improving renewal rates. So, whatever you do, make sure you have a clear plan and a clear path for customer expansion and upsells. 

 August 20, 2021

Steve Frost

About Author Steve Frost

Steve Frost is the vice president and managing director of revenue research and advisory for TSIA. He also serves as TSIA's vice president of CRO Council research, dedicated to revenue optimization. Throughout his career, he has held various leadership and business development roles at companies like Google, Netscape, and Loudcloud, helping them define their go-to-market strategy and business development tactics. Steve is dedicated to helping technology organizations grow their services, subscription, and XaaS revenue by optimizing their practices for growth throughout the customer lifecycle.

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