Strategies for recurring revenue expansion

SaaS startups should aim for the recurring revenue they earn from each customer to grow over time. This is one of the critical responsibilities of your customer success function. Some startups have a hands-off approach to renewals, whereas others choose to be more hands-on. This dramatically impacts the mechanisms available to you for driving recurring revenue growth.

A hands-on strategy is one where your team is individually engaged in the renewal process for each customer. This works best for more expensive and specialised products (i.e., startups earning a lot of money from a relatively small customer base). Because each standalone customer is highly valuable, these startups can afford to manually handle each renewal, which may only come about once a year and could result in a notable recurring revenue uplift.

For these startups:

In contrast, a hands-off strategy is one where the renewal process for each subscription is automated. This works best for more affordable products that target a broad market. Because these startups have many customers who don’t individually contribute much towards total ARR, these startups can’t afford to manually handle each renewal, which is often on a monthly cadence.

For these startups:

While it seems intuitive to say that self-service (i.e., bottom-up or product-led) SaaS products should have a hands-off approach to renewals, this is not always the case. Many self-service SaaS products succeed by removing the barriers to initial product adoption while still taking a hands-on approach to sales and renewals. Essentially, the self-service experience gets your foot in the door while the real money is made through a more traditional sales process that follows. This is why I think the price point is the defining factor rather than the sales/service model.

Regardless of whether your startup employs a hands-on or hands-off approach, these are the critical things to consider for revenue expansion:

Ultimately, delivering new value is the best way to grow revenue from existing customers. As their needs grow, so should the value you bring to the table. This is why many SaaS companies move up the market over time, gradually targeting bigger and bigger businesses. Because your existing customers are growing and their needs are expanding, your customers will pull your product in that direction. This not only ensures that you can retain your customers and charge more for your product, but it also enables you to sell to more sophisticated prospects.

11 December, 2022

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