For every successful SaaS company that has grown over 50% year over year — including such well-known companies as Zendesk, Box, Hubspot, and New Relic — there are thousands of startups that have failed.
In fact, according to a recent McKinsey study Grow Fast or Die Slow,
When you’re a startup, it’s fairly easy to double revenues in a month (for example, going from $10K to $20K). As you start to grow, you can expect to double revenue in a quarter, then in a year. But as you get larger, it’s very, very difficult to double your revenues in these same time frames — after all, how many companies grow from $50M to $100M in one month?
So how can SaaS companies grow, grow fast, grow efficiently, and keep growing?
In working with hundreds of SaaS companies, we’ve learned that the solution to sustaining a high growth rate is to diversify your approach to growth and embrace multiple growth strategies.
We’ve boiled it down to the top 10 essential growth strategies: this article highlights the second – Expand through an Upsell Path.
Given the nature of SaaS’ recurring revenue business model, it’s no surprise that the fastest growing companies are the ones that are most successful at growing revenues from existing customers.
This is well demonstrated in the recent Pacific Crest 2016 SaaS Benchmarking Survey in which we see that the CAC (customer acquisition cost) to acquire $1 in upsell revenue is just 24% of the cost to acquire a new customer.
The same study also shows that median respondents are able to successfully capture 15% of new ACV from upsells. As revenue rises, it’s clear that larger companies have an even higher percentage of ACV coming from upsells, largely to sustain CAC and growth efficiency.
Upselling is not only critical to increasing revenue, but also for customer retention and stickiness, because the more value your customers get from your products/services, the more satisfied they are.
On the B2C side, Dropbox uses a consumption-driven growth model. They offer a free Basic plan to individuals, with 2GB of cloud-based storage space. If users run out of space (which happens quickly once you start backing up photos and other media), they can upgrade to a Pro plan.
Dropbox strategically established this storage threshold as a willingness-to pay boundary. In other words, they know that 2GB is just enough to get customers hooked — and then they’ll need to upgrade to the Pro plan.
With their B2B offering, Dropbox is pulling on a different lever, that of capability driven growth. Their Business plan offers an expanded set of capabilities that companies will require as their business grows and number of users expands.
There’s a real race going on in the cloud storage space. To maintain their current valuation of $10B and prepare for their rumored IPO, Dropbox will need to continue to innovate on their offerings and play with their consumption and capability levers to push their Business solution and drive users upstream.
1. Use data to influence packaging decisions and design meaningful tipping points for upsell paths
2. Design an upsell path to either be capability-driven or consumption driven — or both
3. Arm sales with the customer information they need to successfully target potential upsells
