A well-orchestrated upsell strategy can easily be the lifeblood of your SaaS business. Not only does upselling expand your MRR but it also adds legitimate value for your customers and allows you all to grow together.
A good upsell strategy can also lessen the sting of revenue contraction factors like downgrades and churn by enabling you to maximize the value of each of your existing customers and work toward net negative churn.
The importance of upselling to MRR is undeniable, but how it’s achieved is often hotly debated.
Modern SaaS businesses often handle upsells in one of two ways:
- Sales-led: The sales team handles everything from contract renewals to cross and upselling. Meanwhile, the customer success team focuses exclusively on helping customers succeed.
- Customer success-led: The sales division still handles the initial points of contact between customers and the business, but once a new customer has signed on, they pass the baton to customer success. Customer success handles upsells, cross-sells, contract renewals, etc. There could be as many as 3 CSM profiles involved in MRR development.
Some businesses may operate under a hybrid variation of this strategy, in which the customer success team handles renewals but defer to sales for everything else.
But which team is really better suited to spearhead SaaS MRR expansion?
Expansion can account for between 10-30% of a SaaS business’s revenue. So while determining the correct answer to this question probably depends on your specific business and your unique teams, the implications can have a huge impact on your business.
Both approaches come with pros and cons.
The pros and cons of assigning your sales team to MRR expansion
One of the biggest critiques of a sales-led MRR expansion strategy is that sales executives aren’t as intimately acquainted with your customers as members if your customer success team. However, this doesn’t always hold true.
On average, contracts with an annual value of $2,000 or less close in approximately two weeks. That doesn’t leave a lot of time for sales to interact with the customer. However, contracts with an annual value exceeding $100,000, can take up to six months to close.
Salespeople that have a relationship with their customers successfully upsell at a rate of roughly 70%, putting sales in a good position to handle expansion discussions with larger clients.
Of course, the majority of SaaS transactions don’t fall into the six-figure bracket, which means there’s a range of other factors to consider as well.
Pros:
- Selling is its own skill: You obviously hired your sales executives because they’re good at selling. And the skills of a good sales team may ultimately be more important than familiarity when it comes to upsells and other revenue expansions.
Sales skills are said to take between 9 and 15 months to develop—more time than many customer success team members may be able to put into training. - More focus: Because your sales team is responsible only for selling, it may be able to devote more time to upsells. For your customer success team, selling is a smaller element of its responsibilities, meaning upselling might not get the attention it requires to get results.
Cons:
- Upselling can be distracting: There’s only so much a sales team can be expected to do. It may make sense for sales to handle the expansion of larger accounts, but not at the expense of their ability to pursue new leads. As Evan Cassidy, the sales leader of Drift says:
“I think the biggest challenge in SaaS sales today is a lack of focus. Being able to focus on the highest impact item on a daily basis becomes a superpower.” - Sales carries a connotation: When customers are contacted by sales, they know it’s because they’re about to be asked for more money. This dynamic may immediately put the client on the defensive.
Customer success teams, on the other hand, will likely enjoy a dynamic that’s rooted in trust. Customers expect them to present information that’s helpful to their business, which could be new features or products that can help them achieve more value.
The pros and cons of assigning your customer success team to MRR expansion
There’s no doubting the role your customer success team has in the preservation of your MRR. SaaS businesses with a designated customer success team on average feature a 24% lower churn rate than businesses without customer success, making the department a critical component of stabilizing your business’s monthly revenue.
When it comes to MRR expansion, the role of the customer success team can be a little bit harder to parse out.
There are areas of MRR expansion that many can agree fall naturally within the purview of customer success. For example, when customers expand their operations and need a larger subscription, there probably won’t be any need to involve sales in the negotiations.
But should customer success play a part in actively recommending and upselling to new products and features?
Pros:
- Customer experience is king: The majority of customers (roughly 90%) factor customer service into their buying decisions.
Therefore, teams that facilitate that service may serve as a friendly gateway to new products and features. Businesses are also 14X more likely to sell to satisfied customers, giving lots of merit to a sales strategy rooted in customer success. - Usage intelligence: customer success teams are given regular insights into how customers are interacting with the product, putting them in a great position to make upsell/cross-sell recommendations that provide real value. Studies show the most successful salespeople spend more time listening to their customers than pitching to them.
- Long-game ready: An MRR expansion strategy rooted in customer experience is naturally conducive to longer-term relationships. As Mike Davis of TaskRay says, “If your values are aligned to customer success, be ‘long-term greedy’ and truly align to the customer.”
Customer success teams may not be as aggressive as sales in their approach to expansion, but their focus on long-term success can yield more lifetime value (LTV).
Cons:
- It can be hard to find the right people: As Amanda Ingriham of 15Five says, “CSMs who don’t handle renewals focus on the here and now.”
It’s likely your customer success team members aren’t naturally great at sales. Combining the responsibilities may prove to be a distraction that hurts the department’s ability to perform either task well. - It can taint trust: The customer success role hinges on customer trust. That dynamic may be compromised if sales take a prominent role in the equation.
Both strategies can work well to expand MRR
There’s ultimately no definitive answer to the question of who should handle upsells. However, it seems the “always be closing” mentality doesn’t adequately represent the relationship between customers and businesses anymore either.
Your business strategy and objectives will do the most to inform which department should handle upsells.
For example, businesses that want to focus on expanding revenue as rapidly as possible may favor an aggressive, sales-led strategy. Businesses that are more comfortable playing the long game can find a lot of success upselling through customer success.
In either case, providing a great product with tremendous service is the key to revenue expansion success. Doing so not only creates the most value for the customer but also improves retention to increase the LTV of your contracts.
Quick FAQs about Upselling to MMR
Q: What is the importance of upselling to MRR in a SaaS business?
Upselling plays a crucial role in expanding a SaaS business’s MRR as it adds value for customers and allows growth. It can offset revenue contraction factors like downgrades and churn by maximizing the value of each existing customer, leading to net negative churn.
Q: How do modern SaaS businesses handle upsells?
Modern SaaS businesses usually manage upsells in one of two ways: Sales-led, where the sales team handles everything from contract renewals to cross and upselling, or Customer success-led, where the sales division handles initial contact, after which the customer success team handles upsells, cross-sells, contract renewals, etc.
Q: What are the pros and cons of a sales-led MRR expansion strategy?
The pros include the unique skills of the sales team that can be more important than familiarity when it comes to upsells and the sales team’s ability to devote more time to upsells. The cons are that upselling can be distracting and may affect the ability to pursue new leads, and customers may feel defensive when contacted by sales for more money.
Q: What are the advantages and disadvantages of a customer success-led MRR expansion strategy?
The advantages include the positive impact on customer service on buying decisions, the regular insights into how customers use the product, and the focus on long-term success. The disadvantages include the challenge in finding the right people and the potential to compromise customer trust if sales take a prominent role.
Q: How can a business decide which team should handle upsells?
The decision depends on the business strategy and objectives. Businesses focusing on rapid revenue expansion may favor an aggressive, sales-led strategy, while those playing the long game might find success upselling through customer success.
Q: What is the impact of a good product and service on revenue expansion?
Providing a great product with excellent service is key to revenue expansion success. It not only creates value for the customer but also improves retention to increase the lifetime value of contracts.
