What's better than winning a new account? Upselling an existing one

Startups at the Series A level are so enamored with winning new accounts and new logos, that they overlook existing customers as sources of new revenue.  As a startup, it’s a mistake to forsake upselling your existing customers and if anything, you should focus on upselling more so than winning new accounts for the following reasons:

 

-Focusing on upselling means you’re actively reaching out to your current customer base, which in turn improves retention.  By contacting current customers once a quarter, you’ll discover accounts that could potentially churn, hopefully in time to prevent that churn. 

 

-Upselling is a far shorter and cheaper sales cycle: you already have the primary contacts’ information and attention, whereas with a new account you have to go through layers of gate keepers and waste weeks trying to get to the decision maker. 

 

-Upselling an existing account means they’re far less likely to churn in the future and improves stickiness.  Upselling means your product just became a larger part of the customer’s organization with more users, more sponsors, and hopefully more true champions. 

 

Some of the best publicly traded companies in the world derive a large portion of their revenue from upselling, and some even derive a majority of their growth from upselling.  Below is a table showing 18 publicly traded SaaS businesses which disclose their net retention.  Net retention is defined as revenue at the beginning of a period + new revenue from existing customers – revenue lost.  If you’re above 100%, it means upsells to existing customers are outweighing any losses from existing customers.  It’s a beautiful thing.    

 

    2015 2014 2013   2015 2014   Revenue from Revenue from % of Growth
Net Retention & Revenue Ticker Retention Retention Retention   Revenue Revenue Growth Upselling New Customers from Upsells
2U TWOU 120% 112% 144%   $150,194 $110,239 $39,955 $22,268 $17,687 56%
Benefitfocus, Inc. BNFT 95% 95% 95%   $185,143 $137,420 $47,723 -$6,871 $54,594 -14%
Box, Inc. BOX 126% 136% 144%   $302,704 $216,440 $86,264 $56,274 $29,990 65%
Castlight Health, Inc.  CSLT 116% 103% ---   $70,350 $41,602 $28,748 $6,656 $22,092 23%
Cornerstone OnDemand, Inc. CSOD 95% 95% 95%   $339,651 $263,568 $76,083 -$13,178 $89,261 -17%
Cvent, Inc.  CVT 102% 102% ---   $187,716 $142,245 $45,471 $2,134 $43,337 5%
Demandware, Inc. DWRE 100% 100% 100%   $200,952 $145,879 $55,073 $0 $55,073 0%
Five9, Inc.  FIVN 96% 96% 100%   $128,868 $103,102 $25,766 -$4,124 $29,890 -16%
HubSpot, Inc. HUBS 99% 93% 83%   $167,920 $106,319 $61,601 -$851 $62,452 -1%
Marketo, Inc. MKTO 105% 109% 100%   $183,658 $131,060 $52,598 $6,553 $46,045 12%
New Relic, Inc. NEWR 130% 110% ---   $181,309 $110,391 $70,918 $33,448 $37,470 47%
Proofpoint, Inc. PFPT 90% 90% 90%   $257,329 $187,527 $69,802 -$18,753 $88,555 -27%
RingCentral, Inc. RNG 99% 99% ---   $271,245 $200,098 $71,147 -$2,001 $73,148 -3%
SecureWorks SCWX 105% 102% 99%   $245,441 $190,718 $54,723 $9,536 $45,187 17%
Veeva Systems Inc. VEEV 136% 166% ---   $316,314 $233,063 $83,251 $83,903 -$652 101%
Zendesk, Inc. ZEN 123% --- ---   $208,768 $127,049 $81,719 $29,221 $52,498 36%
Instructure INST 100% 100% 100%   $62,463 $38,093 $24,370 $0 $24,370 0%
Xactly XTLY 104% 102% ---   $59,211 $47,309 $11,902 $1,892 $10,010 16%
                       
  Median 103% 102% 100%   $186,430 $134,240 $54,898 $2,013 $44,262 9%
  Average 108% 106% 105%   $195,513 $140,673 $54,840 $11,450 $43,389 17%

 

A few observations stand out:

 

-In 2015, net retention for these companies ranged from 90% to 136%, with a median of 103%.  As a Series A startup, you should strive to be above 103%, which means you’ll always grow at least 3% per year even if you never add another new customer. 

 

-On median and on average, the 18 companies above are experiencing improving annual net retention, with the median going from 100% in 2013 to 103% by 2015.  Their software products are becoming stickier. 

 

-The right side of the table shows annual revenue each year and whether that revenue is coming from upselling or new customers.  Where available, we show subscription revenue only (CSLT, DWRE, HUBS, MKTO, PFPT, RING, SCWX, VEEV, INST, XTLY). The data actually shows 3 companies which derive a majority of their growth from upselling and 9 companies which derive a material level of growth from upselling (highlighted).  Notice that for VEEV, all their growth is from upselling.  And by the way, notice that those businesses who derive a material level of growth from upselling all enjoy net retention levels above 100%.  Focusing on upselling is therefore not only creating new revenue from existing clients, it’s also preventing the loss of clients.

 

We show the data to illustrate the point that upselling existing accounts should be a priority over new accounts.  Contact your clients at least once a quarter (pick up the phone, don’t use a stupid automated email) and inquire as to any upsell opportunities.  It’s an easier sales cycle, it helps you discover accounts that could potentially churn, and it will result in attractive revenue growth.  

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