How To Generate More Revenue With Customer Expansion Strategies
What if you could boost revenue without having to invest a small fortune in acquiring new users? Making the most out of your existing users while simultaneously improving satisfaction ratings are the core values that lie at the heart of customer expansion strategies.
Read on to learn about cross-selling, upselling, and other top tactics that can help you maximize the value received on both ends of the SaaS relationship!
- Customer expansion creates more value for existing customers and brings in more revenue as a result.
- Customer expansion strategies can include elements of upselling, promoting add-ons, or advertising rarely-used features.
- Upselling and cross-selling both boost CLV but through different means.
- Marketing your add-ons is essential as they aren’t capable of generating standalone revenue.
- Upselling too soon will likely be unsuccessful and could leave a bad taste in the mouths of new users.
- Remarketing is cheaper than customer acquisition and existing users are far more likely to buy in comparison to new prospects.
- Showcasing features at the appropriate time can speed up growth on your SaaS platform.
- Tools like Userpilot can make your customer expansion strategy more agile due to zero-code capabilities and advanced user segmentation.
What is customer expansion?
Customer expansion is the practice of creating more value for customers and, as a result generating extra revenue from the users you already have. In addition to being one of the most cost-effective marketing methods, it’s also mutually beneficial to both the user and your revenue.
What is a customer expansion strategy?
A customer expansion strategy is the playbook you’ll use to achieve the target goals on both ends. This could entail getting users to explore features they rarely use, upselling them to a premium plan, or promoting add-ons.
What are the types of customer expansion in SaaS?
The three main types of customer expansion are:
Each method comes with its own pros and cons so let’s delve deeper into this world of customer expansion.
Customer expansion through upselling
Upselling is a popular sales technique that gets customers to spend more by upgrading to a premium product or service that is of a higher level than what they originally purchased.
In the context of SaaS, this would center around which plan a user is on and whether or not they’re on a free trial.
Customer expansion through cross-selling
Cross-selling differs from upselling as, instead of selling a higher-end variant, you offer a related product or service. These products are often built in a standalone format but are suitable for personas that match your existing users.
Customer expansion through add-ons
Add-ons differ from cross-sells in that they only work if the user already has the base product. Seeing as they don’t function as standalone products, it’s essential that you market them effectively so users adopt these add-ons.
Upselling and cross-selling tips for customer expansion
While upselling may not be an exact science, there are best practices that can significantly improve your results if you apply them to your customer expansion strategy.
#1 – Get to know your audience
User personas are the first step to defining your target audience but the process shouldn’t end there. Look at demographic and psychographic data to get a deeper understanding of your user base.
It will be easier to appeal to existing users if you know how they think, where they’re from, and what drives them forward on a daily basis. Ultimately, understanding their goals and challenges will make upselling/cross-selling more intuitive on your end.
#2 – Don’t upsell too soon
Premature upsells can look like a cash grab to users who haven’t fully realized the value of your product. Wait for customers to reach the “AHA moment” of their journey before you ask them to spend more money on plan upgrades or related products.
#3 – Use a “problem compass”
Let the users’ problems guide you like a compass and help you decide which product(s) to upsell/cross-sell as a solution. Looking at these challenges from the perspective of your users will help align the customer expansion strategy with their own journey.
#4 – Active listening
You never know when an opportunity to upsell will arrive so always be on the ready. Whether it’s a brief phone call or an email exchange, hint at how premium features can help them reach their goals more quickly.
#5 – Retention mindset
If you’re suffering from high user churn rates then upselling/cross-selling may actually be able to help with retention, in addition to revenue growth. Try to first identify why people are leaving through NPS surveys and churn surveys then suggest plans or related products that address these issues.
Why is customer expansion so important in SaaS?
Customer acquisition can be very pricey, especially in the SaaS space. This is part of why generating revenue through customer expansion is so important.
Revenue generated by new customers can be categorized as expensive revenue while revenue you generate from existing customers is called expansion revenue.
Here’s the metric you need to be focusing on: Expansion MRR rate
In the annual SaaS survey by Matrix Partners and Pacific Crest Securities, it was found that the average cost to generate $1 worth of annual contract value (ACV) is $1.18 when acquiring fresh users.
To generate that same $1 in yearly revenue, only $0.28 would need to be invested in upselling. In essence, you can see an equal boost in revenue for less than a quarter of the cost making your campaigns 4x more profitable.
To look at it from another perspective, it would take more than a year to recover the cost of acquiring new customers whereas you can break even on upsell costs within a single quarter.
Bottom line: it’s easier to sell to existing customers than to acquire new ones. The odds of successfully selling to an existing customer are around 60%-70%.
When you compare that to the 5%-20% success rate of selling to new prospects, it becomes clear that your current userbase is a far more profitable market than whatever lies in uncharted territories.
Customer expansion can also increase the likelihood of renewals by helping users realize value through other features that they may not use often. Considering the fact that renewals are the cheapest form of revenue with a CAC of $0.13, increasing retention in this way is very lucrative.
Finally, it’s crucial that you keep key user retention metrics high so that you have enough existing users for expansion strategies to work. After all, there’s no one to remarket to if all your new users leave too soon.
How to grow your SaaS using customer expansion strategies
You can’t rely on your sales team only or customer success to reach out to users and ask them to upgrade. This could turn out to be completely unproductive, possibly even intrusive, and you will probably end up missing quite a few upselling opportunities.
In SaaS it’s important to communicate contextually, showcasing benefits of an upgrade or add-on at the right time (aka when it’s most relevant for the user). Automation is a major part of customer expansion — especially for SaaS companies.
By leveraging automation and product analytics, you’ll be able to identify the ideal opportunity to display in-app marketing compelling customers to upgrade. Let’s have a look at a few effective customer expansion strategies.
Drive customer expansion by showing users what they’re missing out on
Fear of missing out — or FOMO — is one of the most persuasive mechanisms that can get users to upgrade. Sometimes users just need to see what they’re missing out on to take that leap.
Miro is a great example of teasing users without surrendering full functionality:
If you’re using a free account then Miro will let you create up to three boards. However, you’ll be shown a reminder that the boards are public whenever you create a new one. This hints at the fact that upgrading would be beneficial to those who need private boards.
Leverage contextual journey touchpoints automation for customer expansion
When you ask your customers to upgrade is almost as important as how you ask them. Loom is a company that has applied this principle to its in-app messaging. After a video is finished recording, they prompt users to test out a premium feature that removes ums, uhs, and other filler words with a compelling microvideo.
Considering the fact that most recordings will contain a lot of these filler words, Loom has managed to find the perfect moment to promote their tool — exactly when the user hears the filler and wishes it wasn’t there.
At the end of the day, context is everything!
Drive customer expansion by removing upgrade friction
According to the Fogg Behavior Model — which we took a closer look at in our Trial to Paid Conversion Rate article — there are three things a person needs in order for a behavior to occur:
All three elements need to converge simultaneously.
This means you could be missing out on upgrades if users have moments where they want to take the leap but are met with too much friction. Intercom has managed to get around this friction by making the upgrade button readily available when the user is most likely to need it.
When their users want to add an element not included in their plan, a tooltip will pop up explaining the value of a premium plan with an “upgrade now” button along with it.
Drive customer expansion with premium feature trials
There are situations where the most straightforward way to showcase the value an upgrade brings is to offer a trial. This gives users a chance to test out a feature before they pay to unlock it.
For instance, Asana never hides features that are reserved for premium accounts. Instead, they use them as a hook to get more freemium users on premium trials and thus see high upgrade rates.
Configure your plans to drive customer expansion
Tailoring SaaS pricing based on the needs of users is an extremely powerful strategy when trying to drive customer expansion. Miro is once again a great example of this, as it has successfully spread out its features across four plans to optimize customer expansion.
The free plan doesn’t have a member limit for teams because more freemium users means higher upgrade numbers at the end of each month. The paid plans are broken up into three price brackets so that users only have to pay for the features they want.
This makes Miro accessible, affordable, and primed for upward mobility in its user base.
Best tools to use to drive in-app contextual customer expansion
While using custom code to create tooltips and in-app modals is always an option, it comes with the downside of requiring developers. You’ll need them for the initial creation, any messaging revisions, and split testing.
This makes it not only expensive but quite time-consuming.
To keep your in-app messaging more agile and direct, you could use in-app product growth tools to build/test user communication that drives growth through account expansion.
Userpilot lets you take advantage of every opportunity to upsell and prompt plan upgrades within your current userbase. It achieves this by leveraging contextual in-product experiences and displaying different modules based on user behavior.
The advanced segmentation capabilities of Userpilot ensure that you’ll always show the right message to the right user at the right time.
You can create tooltips like Intercom, modals like Asana and Mailchimp, and split-test different approaches to optimize results.
Want to start driving customer expansion through contextual and well-timed in-app experiences? Sign up for a Userpilot Demo to get started today!
The marketing author Tim Riesterer once criticized companies for only allocating 10%-20% of their sales budgets towards customer expansion when 70%-80% of annual revenue comes from renewals+upsells.
There’s nothing wrong with seeking out new users, but it’s important not to forget about the untapped riches that may be sitting right under our noses. The key takeaway from this article should be the evergreen fact that there’s always more value to be had — on both sides of the SaaS relationship.
Want to put an effective customer expansion strategy into place without writing a single line of code? Get a Userpilot Demo or book a call with our team to make the most out of your existing user base!