Quick summary: Customer expansion (upsells/cross-sells) is the “third growth lever” alongside acquisition and retention: a strategy to deliver more value to existing customers so revenue grows as a byproduct of higher satisfaction and a buffer against churn. The post recommends identifying opportunities through journey timing, usage data, and customer/CSM feedback, then executing with smart tiered pricing, cohort segmentation, personalized offers, perfect timing, and relentless listening.
Customer acquisition and customer retention are cornerstones of building and maintaining revenue, but customer expansion — and a robust customer expansion strategy — can also be pillars of success. They enable businesses to provide more value to their existing customers and generate additional revenue.
Considering that studies have shown that acquiring a new customer is exponentially more expensive than retaining an existing one, expansion management becomes more important than ever. The key lies in striking a balance between pursuing new customers and ensuring that existing customers have the right incentives to expand their use of your products and services.
What is a customer expansion strategy?
A customer expansion strategy is a plan for your team to deliver more value to existing customers to drive additional revenue. It’s a cost-effective marketing tool, but one that can require precision and nuance in its execution.
These sorts of endeavors should always be approached with the objective of better supporting customers in achieving their goals through your products. The resulting higher revenues are just that: a byproduct of increased customer satisfaction.
In the SaaS industry, Customer Success upsell and cross-sell opportunities are commonly incorporated into expansion management.
Why is customer expansion important for SaaS businesses?
Churn rate is a major metric for SaaS companies to monitor. They can quickly find themselves in trouble if the rate at which people abandon their services exceeds the rate at which they acquire new customers.
Many factors can influence churn rate. It can run high if more subscribers don’t sign on after the free trial period, or if they cancel after a couple of months. The motivations and reasons behind churn can vary from customer to customer.
Since it’s much more cost-effective to try and hold on to these customers rather than constantly pursuing new ones, it becomes all the more important to try and generate revenue through customer expansion. By expanding the revenue brought in by existing customers, businesses put themselves in a strong position to weather any storms brought on by fluctuations in churn rate.
How to identify a customer expansion opportunity.
Customer expansion opportunities are crucial for the success of your business, but only if you can spot them. If you simply let them pass by, you’re not doing yourself any favors.
One thing to keep in mind is where your customers are in their customer journey. Don’t nudge customers toward a cross-sell or upsell when they’ve only just finished their onboarding process.
It can also be helpful to keep an eye on the data. See which products your customers are using the most and which aren’t being used enough or aren’t being used as they should be. By tracking which features your customers use, you can identify which other products or features might help them even more.
Rely on feedback from both your Customer Success Managers and your customers themselves to understand where pain points are. This can help you identify value gaps and potential expansion opportunities.
Clarity is key. The customer shouldn’t feel that the only reason they’re being given this offer is so they end up spending more money. Provide a solid practical demonstration of how the additional product or service can integrate with their daily workflow and help them realize their goals. Give customers the nudge to understand the value the offer will provide them on their own.
Tips to improve your customer expansion management strategy.
Businesses pursuing a customer expansion strategy should keep an eye on several factors to take advantage of expansion opportunities at just the right time. Timing is essential.
1. Set pricing with customer expansion in mind.
The pricing for your SaaS products should be set with the goal of customer expansion in mind. By spreading features across different pricing tiers, customers are given a gentle nudge to choose the tier with the features that best suits their needs. And it may not always be the cheapest or most basic tier.
2. Sort customers into cohorts.
Customers who have shared needs and goals can be sorted into groups for more effective targeting of your Customer Success cross-sell and upsell offers. This sort of customer segmentation can provide data on their goals, preferences, and purchase history that can help you suggest products and services that will help them achieve their objectives.
3. Provide personalized offers.
Armed with this data from your customer segmentation, you can provide your customers with personalized offers that are tailor-made to find a solution for their needs. This will increase the chances of customers opting for cross-sell or upsell offers when they feel that your team is genuinely considering what they need to meet their goals.
4. Timing is everything.
Any Customer Success upsell or cross-sell offer must be timed perfectly. Customers don’t appreciate feeling like they’re being forced to upgrade. Wait for them to understand the true value of your product and services. Only then should you present your offer that will help them extract even more value from their subscription.
5. Always listen to feedback.
You’ll be surprised how often expansion opportunities emerge by simply lending an ear to customers’ feedback. Most customers will reach out expecting a decent response from the company to a question or concern they might have. By being diligent with every customer email or phone call, you might find opportunities where customers could be guided toward more premium features.
Take charge of your customer expansion strategy.
Customer expansion isn’t just a great way to increase revenues and improve customer satisfaction. It’s also a powerful tool to buffer high churn rates. By approaching it with the perspective of adding value for customers, you can gain a better understanding of what might cause them to churn or what might encourage them to sign on for more.
Head over to our Knowledge Hub: Customer Expansion, Upselling, and Cross-Selling to learn more about how subscription businesses can make customer retention and expansion a critical piece of their growth strategy.
