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The Post-Launch Subscription Growth Playbook

Launching a subscription product is a new revenue opportunity that businesses across all industries are pursuing.

The goal is to launch quickly, and get to market with your offering before your competitors beat you to the punch. There’s a lot of complexity that goes into launching your subscription product, but some of the greatest challenges occur post-launch. The success of your subscription business rests on much more than just the initial launch. The key to running and growing a successful subscription business is being able to iterate your business strategy quickly. And then iterate again. And again. You need to adjust pricing and packaging, move upmarket, expand into new regions, and much more. And you need the right platform to execute on these iterative strategies without significant impact on your existing lines of business. In working with hundreds of companies that have successfully launched subscription offerings, we’ve learned that the solution to sustaining a high growth rate is to diversify your approach to growth and embrace multiple growth strategies post-launch. We’ve boiled it down to the 10 key post-launch business strategies: 1. Create Tailored Product Editions 2. Expand through an Upsell Path 3. Expand with a Cross-Sell Strategy 4. Expand with Usage Pricing 5. Optimize Pricing and Packaging 6. Enable Self Service 7. Enable Assisted Sales 8. Expand into the Enterprise 9. Expand Internationally 10. Make Strategic Acquisitions Here we detail each of these post-launch growth strategies.

1. Create Tailored Product Editions

You might start off selling a single product. But as new features are added, cramming everything into a single product doesn’t really work.

We know that in order to scale and avoid being priced out by competitors, companies need to offer more than one product edition. The question is: how can you best design your editions to move your growth forward? The best subscription companies smartly package their product capabilities so that: – Each edition appeals to a different segment of the customer base, and – Each add-on targets a different customer need Editions and add-ons are just means for monetizing different parts of the customer base.

  • Essential – Their low-priced starter plan for $5 is a clear example of going downmarket to capture the long tail – and an easy way to onboard new customers.
  • Team – Directly marketed to small teams (even in name) and offering everything SMB need.
  • Professional – Offering more feature functionality for established teams – clearly the option they’re pushing.
  • Enterprise – More features and flexibility to scale with larger companies.

Of course this isn’t the locked-down final incarnation of Zendesk’s product editions, nor is it the end of their pricing and packaging journey. Zendesk, like all growing subscription companies, knows that pricing and packaging are dynamic. It’s an ongoing process of mapping product editions to strategy. Since editions and add-on products change over time, companies selling subscriptions need the ability to:

    1. 1. Change pricing in a central location so that it updates across all systems and sales channels (online, in the quoting tool, etc.)
    1. 2. Add new products, editions, and free trials over time without SKU explosion
    1. 3. Enable quick testing and iteration of pricing and packaging

2. Upsell Path

As Paul Farris noted in Marketing Metrics: The Definitive Guide to Measuring Marketing Performance, “The probability of selling to a new prospect is 5-20%. The probability of selling to an existing customer is 60-70%.”

Given the nature of’ 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 a 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. The trick, of course, is that you need to understand your customers, and have deep insight into their usage in order to identify upsell opportunities and build strategic upsell paths. To create and execute on a clear upsell path, businesses need the ability to:

    1. 1. Use data to influence packaging decisions and design meaningful tipping points for upsell paths
    1. 2. Design an upsell path to either be capability-driven or consumption-driven – or both
    1. 3. Arm sales with the customer information they need to successfully target potential upsells

3. Cross-Sell Strategy

While upselling and cross-selling are sometimes conflated, they are really two distinct separate growth strategies.

While upselling is a strategy designed to sell a more feature rich (and expensive) product edition to an existing customer, cross-selling is a strategy designed to sell additional products to an existing customer (to provide a more comprehensive solution). According to a recent report by McKinsey & Company and Gainsight of later stage SaaS companies (with revenue in the $25-75M range), companies that had the lowest churn were those that cross-sold multiple products to about one-third of their customers. The takeaway — for native SaaS and non-native SaaS companies alike — is pretty clear: The ability to solve for a broad range of customer problems, with a broad range of solutions, increases retention. Cross-selling provides an impetus for innovation. Companies that want the ability to cross sell need to be continuously innovating, adding new products, features, functionality, and offerings to entice customers to add on to their plans. To effectively cross-sell, businesses need the ability to:

    1. 1. Track customer behavioral (what they do in the product) and financial (what they’re paying) information to understand customer needs and uncover new add-on opportunities
    1. 2. Guide the sales team to target specific customers for specific add-on offerings
    1. 3. Offer creative pricing strategies (e.g. in New Relic’s case, a shorter billing frequency) to incentivize cross-sells

4. Usage Pricing

At its heart, pricing subscriptions is a way of quantifying value. The goal: let customers pay for the value they need.

The best pricing strategy will let you put a number on the metric that customers value most, based on how they actually use your service. This is commonly called a “value metric.” Simply put, a value metric should do 3 things: 1. Align to customer needs 2. Grow with customers 3. Be predictable – for customers and for the organization This is fully supported by a recent McKinsey survey of Enterprise SaaS customers that showed that more than 75% of customers want pricing metrics that are aligned with perceived value, easy to understand, and easy to track (and thus predict costs). And yet, only about 27% of SaaS businesses use some sort of usage-based pricing today (McKinsey). The nice thing about a usage-based model is that you can use it to create multiple dimensions – which are, essentially, the levers you pull to drive price points higher and higher, drive engagement, and drive revenue. Depending on your business, your levers could be number of emails, API calls, number of units, or any features that can be packaged in different ways. To develop a meaningful, value-based pricing strategy around usage, businesses need the ability to:

    1. 1. Accurately track usage
    1. 2. Enable usage-based pricing, including overage plans, tiered usage pricing, volume pricing, rollover windows, and more
    1. 3. Rate usage to accurately bill customers
    1. 4. Rate usage in real time to provide customers with real-time billing information

5. Pricing and Packaging Optimization

Do you know how much time the average company devotes to planning pricing for a subscription offering?

Six hours (that’s according to research by Jeanne Hopkins, Executive Vice President & CMO at Ipswitch, presented at a recent SaaSFest). That’s it. This seems crazy especially considering the huge impact that pricing has on your bottom line, bigger even than acquisition or retention (according to research by Price Intelligently). Since pricing strategy is key to successful monetization, businesses need to constantly be iterating on pricing to optimize revenue. In our experience, we see this philosophy reflected by our customers who, generally, update pricing annually (which means that they’re thinking about pricing throughout the year). To increase monetization through pricing optimization, businesses need the ability to:

    1. 1. Change pricing in a central location so that it updates across all systems and sales channels (online, partner resellers, in the quoting tool, etc.)
    1. 2. Point-and-click to change pricing, not rewrite code
    1. 3. Easily manage the impact of pricing changes for the entire organization so that finance, sales, and operation teams can keep up with pricing changes

Six hours

how much time the average company devotes to planning pricing for a subscription offering

according to research by Jeanne Hopkins, Executive Vice President & CMO at Ipswitch, presented at a recent SaaSFest

6. Self-Service Sales

While there’s a lot of emphasis on companies moving upmarket from self-service sales to a sales-assisted model, that isn’t the only path. Successful, mature companies generally use some sort of hybrid sales model in which they embrace self-service, transactional, and enterprise sales.

Self-service sales, with their lower price points and shorter sales cycles, are a growth strategy unto themselves. What you lose in deal size, you make up for with sheer volume (not to mention upsell opportunities). To deploy a self-service sales strategy, you need to simplify. Your customer needs to be able to easily find, understand, try, buy, use, and pay for your product. And self-manage their account. Towards this end, the key to successful self-service sales is to have full automated systems to manage customer acquisition, onboarding, billing, payment, and account management. These automated systems eliminate the need for sales support which translates into a lower CAC (customer acquisition cost), relative to the ASP (average selling price) for a new customer. To deploy a self-service sales model for customer acquisition and lead gen, businesses need the ability to:

    1. 1. Track usage to target free-to-paid conversions
    1. 2. Empower customers to self-manage their own accounts beyond sign-up (e.g. view balance, change subscription, update billing information, and pay for invoices).
    1. 3. Support a wide variety of electronic payment methods targeted for different geographic locations
    1. 4. Keep all customers in a single system, so that the customer experience over self-service or assisted-sales is consistent

7. Assisted-Sales Model

Assisted sales teams are built on the foundation that a business needs to provide some sales guidance (for new and existing customers).

Generally, an assisted sales model indicates that your product is feature-full enough to bring in higher ACV customers that will need guidance in the sales process. Pacific Crest saw this exact trend in their 2016 report – the greater the ACV, the more dependent a business was on an assisted sales model. At the same time as businesses are figuring out how to offer assisted-sales, they need to overcome operational challenges to scale their sales team. Companies looking to double down on their sales team need to: Enable sales with the tools and real-time consumer information to upsell, cross-sell, and renew customers Scale with built-in discounting and approval workflows Provide the capabilities to take payments and automate prorations To successfully grow a sales team, businesses need:

    1. 1. Guided selling interfaces to help sales determine which products and add-ons to sell
    1. 2. Real-time information on customer subscriptions, billing, payments, and refunds
    1. 3. Built-in discounting and approval workflows
    1. 4. Automatically calculated proration when customers upgrade to a different edition, suspend a subscription, add more seats, or make other changes
    1. 5. Integration between sales and finance systems so that the downstream impacts of sales are easily managed (e.g. invoicing impact, revenue recognition, etc.)

8. Expand into the Enterprise

Depending on your business and target market, you might focus more on smaller accounts or sell into the enterprise — but both have value.

As TechCrunch recently reported, “At around $30 to $50M ARR, and sometimes earlier, the law of large numbers takes hold, and adding enough new ‘small deals’ to maintain a high growth rate becomes increasingly challenging.” The “law of large numbers” essentially dictates that without landing large deals, it’s going to be pretty hard to reach $100M ARR, and beyond. Moving upmarket into the enterprise means bigger ACV (annual contract value) and increased overall market share. But moving into the enterprise isn’t as easy as the glib “land and expand” mantra would make it appear. Going upmarket isn’t as simple as just selling bigger deals. It’s an internal cultural shift that requires thoughtful preparation. There needs to be demand for an enterprise version, the product needs to be enterprise-ready, and systems need to be in place to support these larger customers. On the sales side, a business needs to have proven their ability to sell – to multiple stakeholders across organizations – and needs to be prepared for the much longer sales cycles that come with enterprise sales. To successfully expand into the enterprise, businesses need:

    1. 1. Internal infrastructure that is “enterprise-ready” such as data access controls and multi-entity management
    1. 2. Quoting flexibility to sell into larger enterprises, with the ability to price for multi-year contracts or ramp deals
    1. 3. Systems integration so that global sales, finance, and customer success teams can all work off the same data

9. International Expansion

With cloud services, there’s no geographical limits to where you can sell your product.

But while going global is a clear growth opportunity for many companies, it poses myriad operational challenges. To go international, companies need to consider and be prepared for legal and regulatory requirements, potential taxes, local payment methods and currencies, different payment gateway partnerships, and data residency requirements. And individual offerings need to be tailored for each new geography in terms of payment options, pricing, etc. To become a truly global company, businesses need:

    1. 1. Ability to accept multiple payment methods in different local currencies
    1. 2. Automatic tax calculation to avoid tax issues
    1. 3. Different payment gateways to maximize local payment offerings
    1. 4. Accurate reporting on foreign exchange gains and losses
    1. 5. Ability to run multiple financial entities separately

10. Strategic Acquisitions

Strategic acquisitions are a next-level growth strategy for companies that have the funds to reinvest in future growth.

Access to capital is only one of many requirements for businesses contemplating strategic acquisition. In addition to cash, an acquiring company also needs a strategic plan that fits in with their business model and day-to-day operations. They also need the infrastructure in place to support all product lines in one system so that upsells and cross-sells across product lines are workable and the customer experience across product lines is seamless. Successful acquisitions can help businesses increase market visibility and market share while enhancing their offerings for a more comprehensive solution. To make strategic acquisitions, businesses need:

    1. 1. The ability to migrate customers from acquired companies onto one main platform for improved accuracy and efficiency of back office systems
    1. 2. Consistent invoicing and billing for seamless customer experience

Grow Fast. But Stay Efficient

While each of these growth strategies is an important piece of an overall post-launch growth strategy, you can’t just jump in headfirst to take on all 10 strategies simultaneously.

Growth rate is undoubtedly important, but the ability to grow efficiently is of equal importance. If we had to pick one metric to represent efficiency, it would be CAC (Customer Acquisition Cost) – the cost to attain $1 of new ARR (Annual Recurring Revenue). The industry average is $1.13. If CAC is too high, then growth becomes meaningless. The fastest growing companies are able to stay efficient as they grow: efficient in terms of infrastructure, headcount, systems, processes, and organizational alignment. Also important: Whatever you do to expand, always stay true to your core. Know when to speed up and when to slow down; when to take on new growth initiatives, and when to shore up your infrastructure to support future growth initiatives. Ultimately, to scale your subscription business, you need to be smart about iteration, fast to act, and have the infrastructure to support ongoing iteration. In order to iterate and continue to grow, businesses across all industries need:

    1. 1. To execute across the 10 different growth strategies
    1. 2. The ability to rapidly adopt multiple growth strategies without burdening finance, operations, or engineering
    1. 3. One system, one set of metrics, and a single place to align throughout the organization

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