How much of your subscription revenue should be coming from your pre-existing customer base as opposed to brand new customers? 25%? 50%? How about 75%?
In fact, 70 to 80% of your revenue should be coming from your existing customers. That’s according to a new report from the Subscribed Institute and the Boston Consulting Group, based on anonymized and aggregated usage data from the Zuora platform.
That figure might sound surprisingly high to lots of people. After all, you can’t have a successful business without landing new customers, right? If revenue dictates resources, should I really be applying three-quarters of my efforts to servicing my existing client base? Given that there’s always going to be churn, shouldn’t I concentrate on feeding the top-end of the funnel?
But as John Pineda, Partner and Director at BCG and co-author of the study notes, “Technology companies that focus on landing a bunch of new accounts, without taking care of them will end up losing customers, as well as the incredible growth they represent. Pricing to value is key to improving core business profitability– and the subscription model makes it easy.” Of course, you need to land in order to expand. But according to our research, we’ve found that the best SaaS businesses invest more in the “expand” part of that equation than their peers, resulting in truly sustainable growth rates and rock-solid financial stability.
Our research shows that enterprise SaaS companies in our database get almost 1.7x the ARR growth of other subscription companies, and that most of that growth advantage is from better retention and what we call “4D revenue expansion.” The term 4D expansion means expanding revenue across four dimensions: upselling,cross-selling, growing volume, and capturing price increases.
In other words, they create more value for their customers by generating revenue with the following four sales motions:
Upselling – Moving customers to higher-value tiers within a good-better-best suite of services.
Cross-Selling – Leading the customer to complementary products and services in adjacent areas.
Usage Increases – These often come from higher adoption rates within a department as well as within the entire enterprise (more business units, more geographies, and so on).
Price Increases – These can take many forms, including year-on-year escalators built into contracts and a mix of value-added incentives a buyer can use to partially offset nominal price increases.
As the report notes, “The bottom line here is ‘it takes a village’ to create sustainable growth, and retaining your village(your existing customer base) is the best source for organic expansion.” Here is a great illustration of that village in action: