Editor’s Note: An excellent article for organizations doing marketing and sales planning for the upcoming year. Highlights the importance of familiarity as a major factor in reducing costs for upsells, expansions, and renewals (existing customers).
Extract from article by Tomasz Tunguz
As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of go to market questions.
SaaS companies benefit from great efficiencies when they market to their existing customer base. In addition to mitigating churn, startups spend 2-10x less on acquiring a marginal ARR dollar when expanding and upselling accounts. This figure is called the cost of customer acquisition (CAC) ratio.
Happy customers buy more products, remain customers longer and enable SaaS startups to scale rapidly and efficiently. Developing the sales motions, customer success sophistication and compensation structures to enable this type of growth is an essential skill of enduring SaaS businesses.