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Focusing on Upselling

The most successful Software-as-a-Service (SaaS) companies today rely heavily on their customer base for growth. They still have a maniacal focus on acquiring new customers, but they also understand their customer base is a gold mine. How much of your new Annual Contract Value (ACV) should come from current customers? A 2016 Pacific Crest survey of over 300 SaaS companies found the median percentage of new ACV generated from existing customers to be 15%. However, the very best companies have even higher rates! Find your revenue range below. If you’re not above the median, keep reading.

% of New ACV Coming from Upsells & Expansions to Existing Customers

This same survey also reiterated what most companies naturally feel but don’t always quantify – it’s much cheaper to close an upsell. The average cost to acquire $1 of new ACV was $1.13, while the cost to upsell $1 into an existing customer was less than 30 cents.

If you’re committed to driving more upsells, here are 3 steps to consider:

Reinvent your onboarding experience

The number one contributor to driving more upsells is a successful onboarding experience. However, most companies have underinvested in this function of the business. Here are a few ideas for how to reinvent your onboarding experience:

  • Start with a dedicated onboarding team. You’re fighting an uphill battle if your onboarding team is a shared resource with customer service.
  • Personalize the onboarding process. Customers want to think you know them and that they’re getting special treatment. If you are selling into multiple verticals, ensure you are making the onboarding process for each one unique and relevant.
  • Focus the onboarding team on sticky features. Know the features that delight your customers and keep them around and make training on these features a core part of the onboarding process. You might even consider incentivizing your onboarding team on adoption of these features.
  • Use a tool like WalkMe, which guides a new user through the app.
  • A/B test multiple experiences to see which one results in greater customer usage. More usage will result in the company wanting to expand the license count.
  • Create a 30/60/90 day follow-up plan with the customer to ensure they’re ramping their use of the product and not hitting roadblocks.
  • Make sure you capture the right information about your customers (What products did they purchase? How many licenses, seats, etc. did they purchase?  What did they pay for those products?  What pain points led to the purchase?). Some of this seems like basic information, but don’t take it for granted that your team has a fool proof process for capturing this data.  Make capturing this data in your CRM part of the definition of a successful onboarding and help your team appreciate why this information is important for future revenue opportunities.

Once you’ve successfully onboarded new customers you’re on the right track. The next major challenge is figuring out who at your company should be responsible for upsells.

Structure your team appropriately

Option 1: Sales Team

(Where this works: Enterprise sales)

In some organizations, the sales team is responsible for both new sales and upsells.  In fact, in Mainsail’s Bootstrapped Survey from 2016, 44% of companies surveyed had Sales responsible for upsells. This setup can be challenging, as closing the first deal is often very different than managing a customer over time to an upsell.  However, it works best in an enterprise sales environment, where each rep owns a small number of accounts and is constantly managing relationships and selling to different business units. In some respects, the first deal is just a way for the sales rep to gain a foothold. Each subsequent deal still involves a complex sales process, involving multiple people and requiring a more consultative selling model. Reps get to know the customer extremely well; rather than transition ownership to another team, it’s best to allow this type of sales rep to continue the relationship and manage the upsell.

  • Accounts per rep: 25-50
  • Compensation: These sales teams are typically compensated the same on upsells as they are on new sales, with commission plans that typically pay 10-13% of first year ACV and have a 50%/50% base/bonus split.

Option 2: Customer Success Team

(Where this works: Selling more of the same product to the same people in small and medium sized businesses(SMB))

Increasingly Customer Success teams are taking on the responsibility of driving upsells. This is a good fit in cases where the upsell involves selling more of the same product to the same buyer, especially in the SMB, where sales cycles can be relatively quick and involve a small number of people. Customer Success Managers (CSMs) typically spend their days tracking a customer’s usage of the product, satisfaction, usage of licenses, and support tickets. They can naturally use this information to identify an upsell opportunity and formulate a quick pitch. Typically, this includes pointing out the value the customer is getting and the potential users that they could add. It’s a straightforward conversation that doesn’t require a long, complicated sales process. In this situation, introducing the sales rep back into the process would only slow things down.

  • Accounts per CSM: 50-250
  • Revenue to manage per CSM: $1-4M
  • Compensation: CSMs are often compensated on net revenue retention (starting revenue – churn + upsells), with an 80/20 base/bonus compensation model. Note that even if this group doesn’t own upsells, they should still be focused on net revenue retention. Good SaaS companies have net revenue retention of over 100%, great SaaS companies can exceed 115%.

Option 3: Dedicated Upsell Team

(Where this works: Selling a new product to the same person or the same product to a new person at small and medium sized businesses)

Some companies build dedicated upsell teams, whose sole purpose is to call into the installed base and sell them more. This is a good fit in SMB sales where you’re selling a new product to the same team or the same product to a different team. Both scenarios require a sales cycle, which includes educating the customer, meeting multiple parties, running demos or evals, and negotiating a deal. You don’t want to distract your customer success managers by having them pulled into a sales process. You also don’t need your more expensive sales team to close these add-on deals.

  • Accounts per rep: 50-200
  • Compensation: Like the sales team, these teams have a 50/50 base/bonus model and their commissions are based on a % of new ACV generated. However, they typically get a smaller % than the sales team, ~7%.

Keep your metrics separate

Many sales forecasts, conversion funnels, win/loss analyses and retrospectives are wildly inaccurate because they combine data from new sales and upsells. New logo sales typically cost more to close, take more time and convert at a lower rate. If you don’t separate new sales and upsells, you’ll get blended metrics that don’t provide insight into your new logos sales funnel or your upsell sales funnel.  Make sure to set different goals in terms of new opportunities, conversion rates, time to close and cost to close.

Successfully driving more upsells can be challenging, but the results are worth the investment. Start with a fresh look at your onboarding process, identify the right team to focus on upsells, and make sure you are tracking the right metrics. Good luck!

This piece represents the opinions of Mainsail and the statements contained herein that are not historical facts are forward-looking statements. The opinions and forward-looking statements are based on current expectations, beliefs, assumptions, estimates, and projections about the industry and markets. Opinions and forward-looking statements contained herein are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Mainsail Partners is under no obligation, and does not intend, to update any forward-looking statements to reflect changes in the underlying assumptions or factors, new information, future events, or other changes.

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5 Key Reports to Measure Pipeline Health

A healthy sales pipeline is one of the best indicators of sales team performance, not to mention the lifeblood of a growing company. However, pipeline metrics are often misconstrued to suggest that the bigger the pipeline the better. When it comes to pipeline health, quality is much more important than quantity.

According to research conducted by the Altify Group, the cost of lost opportunity pursuit is $218,000 a year per AE with a $1 million quota. The inefficiency of chasing bad deals incurs a huge opportunity cost on the sales team. It also prevents the business from accurately forecasting, managing cash flow and planning for the next phase of growth.

So how should sales managers measure the health of their pipeline?

The following reports peel back the layers of your pipeline to ensure that the sales team focuses on the opportunities with the highest probability to close. Using these reports, when your Head of Sales tells you the forecast for next quarter is $1.5M you can have faith in the integrity of that number.

COVERAGE RATIO

Coverage ratio, the value of your pipeline at the start of the period divided by your realized bookings at the end of the period, has been the tried and true metric of sales managers for years. By calculating your trailing coverage ratio, you can then divide your next month or quarters pipeline by that value to calculate your forecast. For example, if last month you started with $180,000 in the pipeline and booked $60,000 your coverage ratio would be 3x (180,000/60,000). Now, if your pipeline is $140,000 going into this month, using your coverage ratio you would forecast $46,600 in bookings (140,000/3). It is the fifty-thousand-foot view into your forecast over the next month or sales cycle. As a rule of thumb, your coverage ratio should be between 3-4x.

The key to a measuring an accurate coverage ratio is training your sales team to accurately forecast the Close Date of all the opportunities in their pipeline, and close out opportunities that are no longer in an active sales cycle. A good way to track how well your team is forecasting is to track the opportunity push rate, the number of times the Close Date has been moved. If you’re using Salesforce, you can do so by installing this simple AppExchange application.

Here is what that report should look like:

SALES CYCLE OF WON/LOST OPPORTUNITIES

Pipeline coverage won’t tell you the whole story. The next step to judge the health of your pipeline is to compare the age your open opportunities to those that you win and lose.

The key here is to note the delta between the average age of your wins vs. your losses. Often, you’ll see that the age of lost opportunities is much greater than your wins. This means your sales team needs training on knowing when to close out opportunities so they can focus on those that they’re most likely to win. From there, compare your open pipeline to these benchmarks. If your open pipeline looks more like your losses than your wins, the pipeline isn’t as strong as you thought. Time to dig in and determine which opportunities should be closed.

Here is what that report should look like:

TIME IN STAGE

The next step is to dig into your open opportunities and compare the time in stage across open and won deals. Use these results to identify stuck opportunities. Ask your sales leader to bring these deals up in their next 1:1 or weekly sales meeting and to challenge the AEs on why the opportunity is stuck and what steps need to be taken to re-engage the prospect. If the AE doesn’t have a good answer, this opportunity should be closed out so that it’s no longer inflating the pipeline.

WIN RATE BY DEAL SIZE

Enterprise and SMB companies have very different sales cycles. If you sell into both these segments of the market and your average sales price (ASP) varies, then the opportunity stage and age alone won’t be enough to gauge the true health of your pipeline. For example, you might have a total opportunity win rate of 30%. However, your win rate for deals under $20K is 40% but for deals over $20K it’s only 20%. It’s important to understand the composition in your pipeline by deal size so that you can weight each segment accordingly in your forecast.

STRIKE ZONE

As we’ve seen, gauging the health of your pipeline looking only at age or amount isn’t enough, since there are nuances to these metrics and outliers that can skew the data. To put these pieces of the puzzle together, create a scatter plot that can help you visualize the outliers and see the health of your pipeline across both variables:

This report will help you identify areas in your “sweet spot” where you have the highest win rates and reps should be focusing their time. For example, in the chart below, you can see the very high win rate for opportunities that are 10-30 days old and under $15K. On the flip side, opportunities that are under $10K and older than 40 days have a very low win rate.

Here is what that report should look like:

IMPROVE THE HEALTH OF YOUR PIPELINE

As you can see, there are nuances to the health of your pipeline and it’s important that your team is trained and your pipeline is accurate not only for forecasting accuracy but also because of the steep opportunity cost of your sales team spending time on opportunities that are unlikely to close.

While some of these reports can be created in Salesforce, and all can be created in Excel you may also consider implementing a business analytics software, such as InsightSquared, to help give you visibility into ongoing performance and historical trends of your pipeline in real-time.

Whether these numbers are pulled from Excel, your CRM or a BI tool, we recommend working with your VP of Sales or Sales Manager to ensure that there are well defined criteria in place for when an opportunity is created, when it can enter and exit each opportunity stage and how to accurately maintain the expected close date. In addition to this, your marketing team should create Closed/Lost nurture campaigns, so that as prospects drop out of an active sales process you can stay in touch with them over time so that when they are ready to buy, your company is top of mind. With these changes in place, your pipeline will be healthy, your forecast accurate and your sales team will be using their time as efficiently as possible.

The information regarding specific portfolio companies is presented to illustrate examples of the types of investments that Mainsail Partners may have made or recommended as of a particular date. It may not be representative of any current or future investments, and the performance of these investments is not necessarily indicative of the performance of all investments made or recommended by Mainsail Partners. It should not be assumed that such investments were or will be profitable or that any portfolio company investments made in the future will equal the performance of the companies identified herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. Past performance is not indicative of future results.

This piece represents the opinions of Mainsail and the statements contained herein that are not historical facts are forward-looking statements. The opinions and forward-looking statements are based on current expectations, beliefs, assumptions, estimates, and projections about the industry and markets. Opinions and forward-looking statements contained herein are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Mainsail Partners is under no obligation, and does not intend, to update any forward-looking statements to reflect changes in the underlying assumptions or factors, new information, future events, or other changes.