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Do you know the final frontier for mature customer success/account management teams? It is expansion revenue management. In this blog, we will discuss this facet and provide reasons for this.
The primary objective of a CSM (Customer Success Manager) is to promote and demonstrate value to its clients continuously. The core business objectives of a CSM are to maintain/increase retention for the company to grow and expand. By consistently working toward this goal, you can accomplish both of these goals at once.
However, many companies have different strategies and approaches when it comes to who should own/lead account expansion and how involved CSMs should be. Unavoidably, this cannot be accomplished if the CSM has not assisted the customer in realizing their desired outcome and the additional value your product provides to their business, regardless of who will own the expansion of the account.
To date, there has been a church-and-state mentality regarding crediting or recognizing teams for their contribution to generating new revenue for a business. Whether the bookings came from new clients or extensions into existing customers, sales teams are recognized and rewarded for their role in closing deals.
Customers look to customer success teams as their trusted advisors. These teams are rewarded and recognized for their contributions to customers’ success rather than the potential additional revenue that a customer’s success might bring to a company.
Hence, it is important to comprehend how you can drive expansion transformation before diving into who owns the expansion revenue and how CSMs can prepare their customers for account expansion.
Simply put, expansion revenue is the extra money a company makes from selling to its current clientele. In short, any extra money made after the customer makes their initial purchase or signs their contract can also be termed expansion revenue. In essence, your current customers spend more than they did the previous month.
What you sell in exchange for this extra income is up to you. You could offer them an extra set of features for the current product or service (aka an upsell). Additionally, you could pitch them a brand-new service that enhances the value you currently provide (aka a cross-sell).
Additionally, expansion revenue is ideal during recessions because it allows you to generate new revenue from existing customers without incurring the high costs associated with acquiring new ones.
20% or more of new revenue for the most profitable subscription businesses comes from repeat customers. However, the majority of businesses have almost zero percent. What makes it such low-hanging fruit if it isn’t higher?
Sales brain, I suppose. Most people believe the process is over once they’ve acquired a customer. Not really. You are just getting started.
Nowadays, businesses are experiencing hyper-growth by selling to their current customer base as acquiring new customers becomes more challenging and expensive. So, how do you do it? You generate more revenue.
Here are the different types of expansion revenue that B2B SaaS enterprises take advantage of:
A customer may feel the need to upgrade your product if, in my experience, they are expanding their business, and your product is a crucial component of that expansion. This implies that if they have a plan with a limited usage allowance, they will raise that limit so that your product would meet the needs of your customer as they grow. This can occur at any point in the customer lifecycle because your customers’ businesses could grow at any time, and they would need a product to support that growth.
These are a little bit more difficult because they frequently involve adding new features to the main product or expanding its functionality. Therefore, CSMs must ensure that the business use case will immediately improve the customer’s business outcome to succeed at cross-selling. Customers’ perception of the feature’s value must also be clear for customers to decide which feature to buy.
Cross-sells are more prevalent in the middle and later stages of the customer journey when the customer already has a solid understanding of your product and is aware of the potential effects a new feature or product extension may have on their business.
The best lifecycle stage for an account to upsell and cross-sell to customers. The customer has already used your product for a full term and has decided to continue using you as their provider for the following term if they are, in fact, renewing. That means the CSM has the chance to plan for the following term with the customer and make an offer to enhance their current product stack.
The features you want to cross-sell and the product you want to upsell must, as before, be essential to the customers’ business goals because doing so will not only spur revenue growth but also foster a strong and reliable relationship between the CSM, the product, and the customer.
Now that we’ve discussed the methods for generating expansion revenue let’s talk about who in a company should be in charge of and responsible for these initiatives.
Customer success, sales, and expansion/account management are typically the three departments and personas within a SaaS company that own and handle customer revenue expansion. What may work for one company may not necessarily work for another because different businesses have different approaches. We also need to consider several other factors, such as the size of the company, the size of the customer, the size of the revenue expansion, the type of expansion, and so forth.
Therefore, I’ll share my knowledge on how each persona is and should be involved to raise the likelihood of a successful expansion within an account, considering all the variables I can think of and my experiences with various businesses and customers.
Every time an opportunity arises, a CSM should be the one to spot it and serve as the focal point of the growth.
When I say “center,” I don’t mean dealing with contract negotiations or finding the appropriate people to get signatures; rather, I mean coordinating and directing the salesperson or account manager using their knowledge and understanding of how the product drives value for the customer.
To close the deal, the salesperson or account manager will have all the background knowledge and data they require from this. The customer should only have one question when an opportunity for an upsell or cross-sell presents itself: How much?
On the other hand, the CSM should have already done an outstanding job of helping the customer achieve their desired outcome and understand the product’s clear value to their business.
Some businesses prefer to delegate the entire expansion process to CSMs. Still, I believe that doing so is counterproductive because the customer will come to see the CSM as their commercial POC rather than their strategic advisor, which could harm the relationship.
A salesperson owned a customer relationship before turning ownership to a CSM. Therefore, it makes sense for the salesperson to get involved as soon as the expansion opportunity presents itself with the help of the CSM. This is especially true if it happens early in the customer lifecycle.
It also makes sense to involve the salesperson who brought the customer to the company in organizations without Expansion/Account Managers to drive upsells/cross-sells with current clients.
This position/department is intended to have a POC within the business to deal with the deals for additional revenue with current clients. To increase the likelihood of success, they should collaborate closely with the CSMs to develop the best strategy and approach.
Inside the company, the CSM should be the one to spot potential account growth opportunities, notify the salesperson or account manager of the opportunity, and give them all the details and context they need to expedite the negotiation and closing process.
SaaS enterprises should not push for upsells or cross-sells that are not consistent with the client’s organic growth. Short-term revenue growth may result from this, but long-term customer churn or downgrading may occur due to the product failing to meet their expectations in terms of meeting their business needs. How, then, can businesses encourage CSMs to prepare customers for upsells and cross-sells without jeopardizing the short-term or long-term relationship with the customer?
Now that we have understood the perspective of each of these departments and who should own expansion revenue/expansion transformation in an organization, let us now divert our attention to whether CS organization should request expansion attribution. If yes, when is the right time for it?
The best time to enter the world of expansion attribution is when a SaaS company reaches a certain size, level of maturity, or complexity of its product offering. Expansion attribution is probably not what you should be prioritizing right now if you’re a start-up heavily focused on customer acquisition and retention.
Even if you are a well-established company with a sizable customer base, expansion attribution is probably not the best strategy for businesses with a single product. There is no pipeline to mine if you don’t have to cross-sell opportunities to offer your customers. Finally, before attempting to attribute expansion revenue, you’ll definitely want to fix that dripping bucket if you’re having trouble with high churn.
Here’s a micro podcast excerpt from an insightful Kaffeine & Karrots conversation between Prithwi Dasgupta (CEO, SmartKarrot) and Paul Henderson (Author, Speaker and Consultant) What Level “Customer Success” are you bringing to the table?
CSMs are in charge of spotting growth prospects in a given account. It is up to the CSM to determine whether the expansion is appropriate, whether the customer is prepared to invest more in your product, and when it makes sense to loop in sales.
Here are some approaches that CSMs can take.
The desired outcome of their clients should be understood clearly by CSMs. It’s time to broaden your horizons and guide your clients toward fresh opportunities for business expansion if you are helping them achieve their desired outcomes.
This will enable CSMs to create a structured and clear business plan with their clients. Success plans evolve in line with the customer’s progress; if the customer reaches certain milestones, the new success plan will include even more ambitious objectives that call for the proper solution.
CSMs ought to be aware of what their clients’ needs are. What are the aches and pains? Do they face any new difficulties that might present chances for growth?
QBRs are a great way to show the stakeholders what has been accomplished with the help of the CSMs and their use of your product. QBRs are ideal for sharing growth strategies that will speed up the customer’s achievement of their business goals if you can communicate the ROI of your product.
As a CSM, you serve as the client’s go-to resource. You should be able to recognize a need or challenge that the customer is facing and present them with a solution using a relevant feature or component of the product. This solution could be as simple as a free trial of an existing feature or enrolment in a beta program for a new product. Pricing will be the only consideration if the feature satisfies their need.
The CSM will be better equipped to share similar solutions that have worked for other customers in the same industry if they are aware of your customer’s industry.
Customers who thoroughly understand your product will have a clear idea of what additional features can enhance their current product stack. In addition, these customers frequently suggest product features that could eventually result in upsells and cross-sells.
By offering customer advocacy opportunities like well-incentivized referral programs, beta testing programs, having customers join customer advocacy groups, and inviting them to speaking engagements like webinars, conferences, etc., CSMs can encourage their books of business to have a closer relationship with a product/brand/company.
Offering your customers these opportunities can strengthen their bond with your company and encourage them to use your product more frequently.
CSMs are at the heart of revenue expansion. How can enterprises motivate their customer success teams to foster additional revenue growth that coincides with expanding their customer base?
In my experience as a Customer Success Manager, providing incentives in the form of three different KPIs is the most effective strategy:
Maintaining or increasing retention is a CSM’s top priority. The most obvious indication that your clients trust you as a supplier and want to keep working with you as a business partner is increased or maintained retention. As a result, setting up bonuses for various retention tiers is a way to pay the CSM for this kind of KPI.
One suggestion is to make this a combination of customer retention (retention in terms of the number of customers) and net retention (retention in terms of money).
Businesses could also offer a bonus for any new annual recurring revenue (ARR) or total contract value (TCV) the CSM has generated with their accounts. This KPI shows the growth and expansion of account revenue.
It’s nice to acknowledge CSMs for other KPIs besides retention and growth. Securing case studies, increasing feature adoption, achieving high health scores, etc., are some KPIs that are not directly related to revenue.
Most bonus compensation should be focused on retention to avoid pressuring CSMs to promote pointless upsells and cross-sells. Your CSMs will always use retention as their primary KPI if you do this.
Here’s an image showcased below that depicts how SmartKarrot CS platform can assist you in exceeding the goals of CSMs:
Renewal and expansion are still necessary to account management tasks even though traditional account management does not work; they just need to report to, roll up to, or otherwise be compatible with customer success management.
In my view, there are two reasons to separate expansion from other customer success activities:
Do not split up because of a lack of trust or a desperate attempt to meet your targets.
If building on the add-on to their account causes them to become distracted or takes a long time, then you should optimize that process. You want your CSMs to be focused on assisting the customer in achieving their desired outcome.
Whatever the case, the CSM must manage the customer’s expectations by informing them that add-ons or other expansion opportunities may arise from time to time and that when they do, the expansion resource will be discussed. In this manner, there are no unpleasant surprises, and everything makes sense. 62
Always remember the true definition of customer success, and plan account growth accordingly. Your business will change, as well as the efficiency and happiness of your CSMs.
Dattatraya Shetty is an IT Professional with 2 Decades of experience in areas of Product Development, Implementation & Service Delivery Management. As the Head of Implementations and SOC Compliance in Smartkarrot he is on a mission to provide relishing customer experience.
Published October 13, 2022, Updated April 27, 2023
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