If you’re depending on yourcustomer base to add users as a way to drive upsells, you’re doing itwrong. Here’s why:
Charge based on value, not seats. You shouldn’t becharging the customer based on the number of seats/users they have on yourplatform, or at least shouldn’t advertise it that way. You should be charging based on the value andROI you’re generating for the customer, materially discounted of course so theycan realize that value. Then, you shouldallow the customer to onboard as many users as possible onto yourplatform. This creates strong evangelismat the client and prevents you from losing the customer because the “champion”left the company. The more users on yourplatform, the higher the stickiness, so don’t dissuade usage with yourpricing.
Pricing based on users cuts both ways. If there isa recession or if the client needs to cut users back because of their owninternal issues, your retention figures will be impacted at no fault of yourown.
What’s the right way? It’s by offering new features, new integrations,and new functionality to your platform, then upselling based on the new ROIgenerated for your client. This is howthe big software players do it. Beloware examples:
Ever Commerce which went publicstates the following in their S1: “Our ability to cross sell additionalproducts and services to our existing customers can increase customerengagement with our suite of solutions and thus have a positive impact on ournet pro forma revenue retention rate. Webelieve we have the opportunity to drive incremental revenue growth from ourexisting customer base through increased cross-selling of our integratedsolutions, including digital payments, customer engagement and marketingtechnology.” Furthermore, “This “landand expand” strategy allows us to acquire customers with key foundationalsolutions and expand into offerings via product development and acquisitionsthat cover all workflows and power the full scope of our customers’ businesses.This results in a self-reinforcing flywheel effect, enabling us to drive valuefor our customers and, in turn, improve customer stickiness, increase ourmarket share, and fuel our growth.” No mention of upsells via expanding seatcount.
Sentinel One which went publicstates “As we enhance our platform functionality and value proposition, weexpect many of our customers to adopt additional platform functionalities andSingularity Modules to address all of their cybersecurity use cases through thesame platform and agent. We have architected our single agent such that we canimmediately activate additional modules for our customers on the alreadydeployed agent, so adding increased functionality is seamless for us and ourcustomers. This gives us the ability to show in-product promotions and trialsand to drive the expansion of our Singularity Modules, The power of ourland-and-expand strategy is evidenced by our 119% and 117% dollar-based netretention rates as of January 31, 2020 and 2021, respectively.” No mention of upsells via expanding seatcount.
CouchBase states “The Couchbaseplatform is licensed per node, which we define as an instance of Couchbaserunning on a server. Our subscriptionpricing is based on the computing power and memory per instance, as well as thechosen service level. Growth of ourrevenue from our existing customers results from increases in the scale oftheir deployment for existing use cases, or when customers utilize our platformto address new use cases. In addition, our professional services organizationhelps customers deploy new use cases and optimize their existingimplementations.” Use cases, notseats.
Powerschool says “Many of ourcustomers begin their journey with us by using only two of our 15 products, onaverage, as of December 31, 2020. As customers begin to appreciate the benefitsof an integrated software platform across student data, classroom learning,office functions and talent management, they increase the number of solutionsthey buy from us over time, with over 1,000 customers owning 5+ products andover 3,000 customers owning 3+ products as of December 31, 2020. Our futurerevenue growth is dependent upon our ability to expand our customers’ use ofour platform, and our go-to-market efforts are designed to drive cross-sellgrowth.”
So, while expanding yourproduct to other teams or adding seats counts as an upsell and does work, the healthiestway to upsell an account is by expanding the scope of the product, addingfeatures, integrations, and functionality you can then charge for across theentire platform.
Thank you for reading. Visit blossomstreetventures.com for moreblogs and SaaS data. Email the author atsammy@blossomstreetventures.com.