Expansion Revenue Management: The Final Frontier for Mature Customer Success and Account Management Teams

Editor’s note: The Success League welcomes Stanley Deepak of SmartKarrot as a guest writer for this week’s blog, where he offers his thoughts and opinions on best practices for expansion ownership and processes.

By Stanley Deepak

What is Expansion Revenue?
Expansion revenue is money made after a customer's initial purchase or contract. You may add more of an existing product, known as an upsell. It is even possible to add an additional product or service to boost your value, known as a cross-sell. 

During recessions, expansion enables you to gain additional revenue from current clients without acquiring new ones. 20% or more of subscription firms' new income comes from existing consumers. As recruiting new customers becomes more difficult and costly, organizations are growing by selling to existing customers. 

Diverse types of expansion revenue 

B2B SaaS companies typically see these expansion revenue types: 

Upsells

If a customer's use case is expanding, they may need more of their current product. A common example is a limited use plan that may be outgrown and then increased. Since your customer's usage might grow at any time, upsells can happen at any point in the customer's lifetime.

Cross-sells

Cross-sells involve adding products, features, or expanding functionality. CSMs must engage in a sales cycle to demonstrate the cross-sell product will improve client business outcomes. As with a new sale, customers must understand the feature’s value before buying. Cross-selling is more common in the middle and end of the customer journey when the client understands your product and its implications.

Now that we've discussed the types of expansion revenue, let's talk about who in a company should be responsible for these initiatives.

Which department executes a company's expansion revenue program: Customer Success or Account Management? 

SaaS companies could expand customer revenue via Customer Success, Sales, or Growth or Account Management teams. One company's method may not work for another. Firm size, customer size, expansion type, and myriad other factors must be considered. Let’s discuss a common scenario of how each persona can and should be included to maximize the possibility of successful account expansion. 

Customer Success

A CSM should identify growth opportunities. Once an opportunity is identified, a CSM should bring the Account Manager or Salesperson into a customer conversation, having shared the relevant background knowledge and data. Ideally, the CSM has previously helped the customer achieve their objectives and understand the product’s value, and is therefore seen as a trusted strategic advisor. 

Account Management Team

This department will manage and complete any expansion sales cycles from current clients, once the CSM introduces the opportunity. CSMs should help them select the best strategy and approach, and give all the details and context needed to expedite negotiation and closing. 

SaaS firms shouldn't push upsell or cross-sell against organic growth. This may raise short-term income but lead to customer attrition or downgrading if the product doesn't meet their needs. 

Sales

If there is no Expansion Account Managers role in a vendor’s company, the CSM should instead engage a sales teammate for upsells and cross-sells as outlined above. Ideally, the salesperson should be the same person who initially won the account.

How a CSM can nurture accounts for expansion

Define and Understand Intended Results

CSMs should understand their clients’ goals. If you're helping your clients achieve their goals, you can guide them toward new business expansion opportunities. 

Plan for Success

CSMs must establish a defined business strategy with customers. If a client passes certain milestones, the new success plan will contain more ambitious goals that need solutions. 

Discover New Challenges

CSMs should know client needs. What hurts them? Do they encounter new challenges that provide development opportunities?  

Quarterly Business Reviews (QBRs)

QBRs demonstrate to stakeholders what CSMs and your product have done.

If a CSM can express your product's ROI in QBRs, they can help customers reach their business objectives faster. 

Product Trials and Beta Programs

CSMs should notice a customer's requirement or difficulty and provide a solution utilizing a product feature or component. This might be a free trial of an existing function or enrolment in a beta program. 

Substantial Use-Cases

The CSM will be better equipped to share similar solutions that have worked for other customers in the same industry if they know your customer's industry.

Product Feedback

Customers who understand your product will have valuable feedback to offer. Customers often suggest product enhancements that might lead to upsells and cross-sells. 

Customer Advocacy Initiatives

By providing referral programs, beta testing, customer advocacy groups, and speaking engagements like webinars, CSMs may encourage their customers to have a tighter connection with a product, brand, or company. Offering these possibilities may increase client loyalty and drive product usage. 

How can enterprises foster customer success for growth? 

CSMs are at the heart of revenue expansion. How can enterprises inspire their customer success teams to boost revenue and client base? As a Customer Success Leader, I've found that three KPIs work best:

Retention Incentives

Retention is a CSM's primary goal. Increased or sustained retention shows that customers trust you as a supplier and want to engage with you as a business partner. Creating incentives for retention tiers is a technique to compensate the CSM for this KPI. One idea is a mix of customer retention (number of customers) and net retention (retention in terms of money). Most of a CSM’s variable compensation should concentrate on retention to prevent forcing CSMs to pitch useless upsells and cross-sells. If you do this, CSMs will focus on retention.

Compensation for New ARR or TCV

Businesses might provide an incentive for new ARR or TCV the CSM generates with their accounts.

This KPI measures revenue growth. 

Spiffs

CSMs should be recognized for more than retention and growth. Case studies, feature uptake, health scores, etc., are non-revenue activities that aren’t as important as retention, but may suffer if they are not measured as a KPI.

Concluding Thoughts 

Renewal and expansion are both key to account management. It’s best to separate growth and customer success for two reasons:

• Hard expansion sales distracts CSMs from core retention activities.

• When complexity is minimal, you can afford an expansion resource.

Your CSMs must assist customers to succeed.

The Success League is a customer success consulting firm that builds and develops top-performing teams. We offer consulting, coaching, and certification training for both CSMs and CS Leaders. Please visit TheSuccessLeague.io for more info.

Stanley Deepak - Stanley is an innovative professional with experience in leading Global Customer Success, Sales, Account management teams across SMBs and Start-ups. Over the last 2 decades he has built high performance teams and focused extensively in meeting the ever changing needs of customers. With a strong entrepreneurial approach, techno-commercial knowledge and leadership experience he is known for forging trusting and mutually beneficial alliances across organizations. He has been recognized as Global Top 50 Business Growth Leader in 2022. During his free time he manages his NGO working with under privileged kids and youth.