Recurring revenue is a beautiful thing.

Einstein said “compound interest is the eighth wonder of the world”. Well then recurring revenue is the ninth wonder.

That’s why SaaS businesses can grow quickly with high gross margins.

The revenue momentum creates gravity for the organization. Once that wheel gets spinning, the business grows faster and faster. Repeat orders and repeat business that comes from your install base carries a lower acquisition cost, which means more gross profit that the business can use for whatever it needs: product development, sales, marketing, profit, etc.

The fastest growing companies know that existing customer relationships are the key to driving growth. It costs less money to sell to existing customers than it does to sell to new customers.

That means each marginal dollar from an existing customer is much more profitable than each marginal dollar from a new customer.

Yet so many companies ignore this opportunity. They allow upsells to come in organically. They let the customer success team run expansion and renewal conversations with customers (I have written about this before). They wait too long to change pricing and packaging. They don’t proactively reach out to customers for opportunities to expand the partnership.

We had all of these issues at Levelset. It took too long for us to seriously work on upsell and expansion revenue. We waited until June 2020 to create an install base sales team that focused exclusively on working with existing customers.

It took another 6 months before we actually figured out the right plays for driving more revenue from our customers.

These are the four plays that we used to drive 100%+ net revenue retention.

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‍4 Upsell Motions That Drive Revenue Retention

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1. Expand account usage‍

Probably the most obvious of upsell plays, when a customer expands their usage of your product, you should increase the price. Structure your pricing in such a way that a customer needs to pay more money to use more of the product. The value metric that your price is based on should signal the relationship between price paid and value delivered.

Putting this play in motion:
Run a report with every existing customer, the total number of units of value in their agreement (seats, API calls, actions, projects, etc.), and the total number of units consumed to-date in their agreement term. This is going to show you which customers are pacing ahead of their allotted units. For example, if a customer is 6-months into their agreement term but they are 80% through their usage limit, it’s time to call the customer and ask them to expand their account.

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2. Convert from legacy to modern price‍

Update your pricing regularly. At least once a year, if not more. Most companies let existing customers stay on legacy pricing after a price change/increase. They do this out of fear that the customer will churn because the price went up or the packaging changed. The customers that will churn over a pricing change are not likely to stay around anyway. Don’t let the disloyal customers dictate how you run your business.

Putting this play in motion:Run a report with every existing customer and the current price they are paying. Identify which customers are on legacy pricing and need to move modern pricing. Add a field that shows the price they would be paying if they were on the modern price. Calculate the difference between these two numbers and sum up to total across all customers. This number might surprise you. That’s what you can get by going to your existing customers and asking them to move to a modern price. You are going to churn out some unhappy customers, but you will gain much more revenue than you lose from this exercise.

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3. Price increase at renewal‍

When the price for milk goes up at the grocery store, do you decide to stop buying milk? No. Prices go up over time, for many reasons. The same should apply to your product.

This is another play that seems obvious but so many companies don’t do it. They let customers renew year-after-year at the same price the customer initially paid. This despite the company investing in the product to make it better and more user friendly. Companies should increase prices every time a customer renews, even if the increase is 5% or less.

Putting this play in motion:
‍Start by reviewing your current subscription agreement. Make sure there’s a clause at the end discussing annual price increases. Set the default at 7%. This works because it’s unlikely that you will automatically increase a customer’s agreement without talking to them first. In that conversation, you can find more opportunities to deliver more value and ultimately increase the total price of the agreement. You can also use that 7% as a negotiation point in the agreement. You can trade a multi-year agreement for locking in the price increase at renewal. You can trade annual price increase for a case study or for the customer to be a reference. Just include it in your agreements.

Next, create a schedule that shows you every customer with a renewal coming up in the next 12 months. You should have a touchpoint at least 90 days out from the renewal date. Longer if the customer is a large organization. Get the customer on the phone, bring in the customer success team, and work with the customer on getting more out of the product. Show the value in the relationship first, then explain that the price will be going up at the renewal.

The customer will be shocked or frustrated at first, but they will calm down. Explain that the price is increasing because the product has improved (if that’s true) or because of inflation or because the pricing has changed to a modern price. Show them the math of how much they will be paying next year vs this year. Address their concerns about the relationship and create a closing plan for getting the renewal signed.

You will find that most customers are agreeable to this kind of price increase, so long as your product and team have been delivering value all year.

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4. Cross-sell‍

The final upsell motion requires that your company have more than one feature-set or product. I recommend a “good, better, best” pricing model whereby the feature-set is more complete as you move up in packaging. Many customers start out with the lowest packaging level because they aren’t sure about the value of the product. When you are 6 months into a customer relationship, the relationship value is clear and it is time to lean into the full value of the product. Most customers will not volunteer their desire, we have to work the relationship and ask the customer for the business.

Putting this play in motion:
‍The motion is quite simple. Set a schedule where the sales team can have a conversation with the customer 6 months after they signed up. If the customer is on a “good” plan, ask them if they want to move to the “better” plan. Be clear about the value they will realize by expanding the product usage. Run another product demo if you need to show them the new features or products. This play works when you are building on an already successful customer relationship.

‍What happens if I can’t get more revenue from the customer?

Some customers will not expand their spend no matter what you say or how much value you communicate. Don't stress, there’s still value that you can get from the relationship beyond dollars. Here are some things that you can ask of the happy customer:

• Ask them to give you a review on G2, TrustRadius, or TrustPilot
• Ask them for a customer referral (see if they will make the email intro)
• Ask them to participate in a case study
• Ask them to agree to be a reference for a prospective customer
• Ask them to participate in a product focus group

Think beyond the dollars in the relationship and find ways to get closer to the customer. Every touchpoint is an opportunity to provide value and get value in return. When you think about your customers as partners, your eyes will open to all of the great ways that you can support each other.