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Expansion Revenue - 5 ways to add extra revenue to your SaaS business without adding new customers
Hey - it’s Alex!
Today, I will share with you:
1️⃣ 3 Actionable SaaS growth tips
👉 5 ways to add expansion revenue to your business
👉 The 3 reasons why your GTM sucks
👉 Macro trends - the underlying power of why your product matters NOW
… that will help you quickly grow your SaaS product 🚀.
👉 Before you read on:
✅ Create your own powerful SaaS Growth Strategy with my FREE Workbook (helped 1800+ SaaS professionals)
✅ Nail your Go-to-market strategy fundamentals with my FREE 1-page Notion Template (helped 600+ SaaS professionals)
✅ Unlock your growth potential with 90+ actionable SaaS growth tactics (helped 100+ SaaS professionals)
1. Expansion Revenue - What it is and how to achieve it.
What is Expansion Revenue?
Expansion revenue is all the revenue you make with your existing customers on top of the initial revenue (based on what they signed up for in the beginning).
Here is a simple example.
🔸 You have 100 customers, each paying 5k€ ARR (initially)
🔸 10% are upgrading to your Premium plan for 10k€ ARR
🔸 This adds 50k€ ARR (10*5k€ ARR) to your bank account
So you have in total 550k€ ARR (instead of 500k€). That's a 10% growth.
The 50k€ ARR is your Expansion Revenue (normally referred to as Expansion MRR or Expansion ARR).
So this example makes it obvious why expansion is so beautiful.
You are adding new revenue to your business without adding new customers. And especially also without the cost of new customers (your CACs).
This means it’s normally a way more (cost) efficient way of growing your business.
Positive Effects of Expansion Revenue
So growing your business with expansion revenue positively affects your key SaaS metrics.
1️⃣ Increase your LTV (Lifetime Value)
If your customers pay more every month for your product, over the time of their lifetime (until they churn), they will pay more. So your Customer's Lifetime value increases over time.
2️⃣ Improve LTV to CAC ratio
As a result of your increased LTV, the ratio between LTV to CACs gets also better. The ratio is one of the key metrics to track in your SAAS business. The better the ratio, the faster your payback period (the time it takes to cover your customer acquisition costs).
Example: You pay 1000€ to acquire a new customer. The customers buy your product for 200€ per month. So it takes you 5 months to fully recover your customer acquisition costs. Your payback period is 5 months.
3️⃣ (Net) Revenue churn rate
The revenue churn rate is of the 2 types of churn rate. In SaaS, you differentiate between revenue churn and logo churn (customer churn).
Expansion Revenue positively affects your revenue churn rate, and hopefully enables you to achieve net negative churn. This means every month you are making more revenue from existing customers than you are losing from churning customers.
Example: Let’s say you have 100 customers, each paying you 50€ per month. This means you have 5000€ MRR at the beginning of the month. Now 10% of them are upgrading to your premium product for 100€ per month. This means you are adding 500€ expansion MRR (1050€) to your business. At the same time, 7 of your customers are churning this month. This means you are losing 350€ MRR (750€). Your expansion revenue (500€) is more than your churn revenue (350€). At the end of the month, your revenue is 5150€ MRR. This means you have net negative churn.
5 different ways to add expansion revenue
Now we take a look at 5 ways to add extra revenue to your SaaS business without adding new customers👇
The different ways to achieve expansion revenue are all powered by up-selling and cross-selling - in one or the other way.
1️⃣ Value-Based Pricing
You need to understand the core value the product offers to your customer and find the right value-metric for it. With the right value metric in place, you have a pricing that scales with your customers. The more they use the product, the more they need your value metric, and the more they pay you. Check out the SaaS Pricing Strategy Guide to learn more about it.
2️⃣ Feature-based Pricing
You offer different pricing packages where you are gating your features. To make this work you need to clearly understand the needs of the different customer segments and find ways to upgrade them over time from your basic plans to your premium plans.
3️⃣ Track user intent signals
This one is more tactical and relies on a good pricing strategy (see point 1 and 2).
Step 1: start tracking your customers’ product usage.
Step 2: Create indicators that you know that they are ready for upselling. This could be for example if someone uses feature X (part of your Basic plan) a lot, you know that feature Z (part of your Premium plan) is probably valuable for them.
Step 3: Now you know the data and know when to act. Now it’s time to act. This can be in-product messages, email campaigns, email outreach, sales calls etc.
4️⃣ Incentivize Upgrades
Make it easier for them to experience the expensive plans. Examples are free trials, discounts for existing customers, or great consultations with customer success (calls or webinars).
5️⃣ Enable frictionless in-product upgrades
If it’s possible for you, make it frictionless. The best upgrades just happen without anyone being involved - no sales calls, no credit card checkout. PLG or SLG, doesn’t really matter, in both cases make the experience as frictionless as possible.
🚨 Coming soon…I’m launching a new program in Q3 2023 🎉
You know that I’m helping early-stage B2B SaaS founders to grow from 0€ to 1M€ ARR with a powerful GTM strategy.
At the moment I do this in two ways: Advisory/Sparring & Consulting.
As many of you ask for it, I’m now launching a 3rd way 🎉.
A 12-week GTM coaching program for early-stage B2B SaaS founders and leaders.
The program will help you:
✅ to identify the key drivers for your business growth
✅ to build and run an effective and scalable GTM strategy
✅ to do the right things at the right time (proven frameworks)
✅ to hold yourself accountable to get things done
👉 Interested? Apply HERE for my waitlist (Limited to 10 founders).
2. How to know your Go-to-market (GTM) sucks
A lot of founders try to improve their sales and marketing activities on a daily base. They improve the visuals, better tracking, more sales calls, and more email prospecting.
And don’t get me wrong, iteration is the only way to go.
But sometimes the problem is more fundamental. I’m talking about your GTM.
Your GTM sucks if...
❌ You send 100 emails but 0 responses
❌ You get 1000 impressions, but 0 sign ups
❌ You run Google ads, but 0 conversions
❌ You have 10 sales demos, but 0 won deals.
If this sounds like you, then you probably lack a proper GTM strategy.
There are 3 main elements that could be the reason:
🔶 Wrong/unclear Ideal Customer Profile
Here are the 2 things I see the most:
targeting too many people at the same time —> being unspecific
don’t really understand the 3 basics of the ICP (Who they are; What problem they have; Why it matters)
know who they are, but not their language (this leads to the next point of messaging)
Here are the things I see the most:
being unspecific about our own positioning (Premium player vs. low-cost player) and who we target (Enterprise vs. SMB)
talk a lot about features, but miss the key parts of value proposition, capabilities, and results.
having a hard time clearly communicating the product, why it matters, and the benefits in a way that the customers get it (a lot about copywriting and sales skills).
🔶 Wrong/unclear Sales Motion
Things that I face a lot:
a very unstructured sales process (every new sign-up or sales demo looks different)
the CRM is not aligned with the way new signups/demos are handled
You need a proper GTM strategy first, then you can focus on growth tactics.
👉 So take a few moments, step back from your daily operational hustle, and work on your GTM strategy. Get my FREE Workbook (helped 1800+ SaaS professionals) to bring your GTM to paper.
3. Understand the Market - WHY NOW?
The market strategy is step 1 of a powerful GTM strategy.
And I know, everyone (including me) tells you to understand our market and customers.
But this time I’m not talking about your ICP. ****A lot of founders jump right into the specific details and miss out on the bigger picture.
So take a step back and look at the market from a higher level.
Your job is to clearly understand:
What is happening/changing (at a higher level) in the market (macro trend) right now?
Why do your customers need to care (now) about your product?
What is the underlying force that powers your business?
What is not changing over the next weeks?
Macro trends and specific events are your friends. They are the reason why your customers care about the topic.
Here are some great examples (of course there are many more):
2️⃣ New Regulations (GDPR, OZG, CSR Reporting)
💡 Best tip, failure, and learning by Vikas Potta (CEO & Co-Founder of Fable)
Tip: Create high-converting landing pages
B2B marketers have a super simple way to increase their conversions. Just let your website visitors walk through the product themselves before they book a meeting. Companies are seeing at least a 30% increase in conversions by adding interactive demos on their homepage.
Breakdown of a perfect landing page
The hero section: Build curiosity & grab attention
Product in action: Show, don't tell
Social proof: Provide validation
Amplify their pain & offer a solution
Introduce features with benefit-led messaging
Ready to use landing page template
👉 If you're looking to redesign your landing page for conversions or create a new landing page, check out Vikas’ Guide on high-converting landing pages.
🧠 Do you want to be next and share your best tip with 1200+ SaaS professionals? Reach out to me via Linkedin.
💪 1 Bonus material (software, content, news) - this time The Prospecting Playbook by Valentin Wallyn
This playbook is the guide that shows you exactly how to fuel your prospecting pipeline with relevant leads, without spending too much time on it.
In this playbook you will learn:
How to identify your ideal customer profile (ICP)
How to use Sales Navigator to find people & companies matching your ICP
How to scrape leads & export emails out of Sales Navigator
How to setup a state-of-the-art cold email infrastructure to send tens of thousands of emails per month
P.S. Check out my list of best software tools for SaaS startups for more inspiration.
Happy growth 🚀.
5 ways to add extra revenue to your SaaS business without adding new customers
How to know your GTM sucks and what to do about it
Macro Trends - The underlying power for WHY NOW
🚀 Whenever you’re ready, 3 ways I can help you:
Follow me on Linkedin for more actionable tips to grow your B2B SaaS business
Work with me 1:1 to grow your B2B SaaS business:
1️⃣ Advisory/Sparring - We’ll have regular 1:1 sessions deep-diving into your most important challenges.
2️⃣ Consulting - We’ll work together hands-on to grow your business
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