(& why Customer Acquisition Cost & Customer Lifetime Value Metrics change everything)
As sales professionals, you’ll all be aware of the Land and Expand model – winning the first order and then upselling or cross-selling to expand the client – it’s at the very heart of all sales strategies. While landing the first order from a new customer gets almost all the attention, once you reach Q4 and your annual target is looming, the focus then turns to expand. After all, once that first deal has been ‘landed’ from a new customer – expanding that into further orders must be easier than looking for brand new business – mustn’t it? So why is it so many landed new customers fail to deliver the forecasted expand follow on orders in Q4. With the SaaS/ARR income model depending on its success, it’s a business-critical problem that has to be solved.
The reality of Land and Expand
The brutal truth is that it’s not actually that easy to expand and almost all sales professionals will have differing opinions on how to execute both land and expand. But which is the more challenging? Most will say that landing that first deal is far more challenging – sales and pre-sales technical professionals with successful new business records are, after all quite rightly highly sought after.
However, and this may be a controversial view, in my opinion, the expand element has complexities that are less obvious and consequently even more demanding. The evidence? The vast number of new wins that never expand as much, or as quickly as the land team have enthusiastically forecasted.
Customer Acquisition Cost (CAC) v Customer Lifetime Value (CLTV)
The change to SaaS pricing models with ARR has pushed land and expand to the front of the queue of ways to value tech companies by Investors and analysts. First wins from new customers often have a high CAC, not only because of the amount of time it takes to land the deal, but also the technical resources and senior management time needed. This can often be in excess of the revenue generated by the first order. Consequently, if CLTV – in other words subsequent orders – are either never achieved or are not achieved at the value expected, then the business is going to be in deep trouble against its financial cost model. This overturns the previous view that new customer wins at almost any cost demonstrate growth and increase in market share. The equation is a simple one, sales leaders must execute an expand strategy that delivers the forecasted ARR from new customers on time and to the value forecasted in order to satisfy CAC & CLTV metrics that investors and analysts expect.
7 deadly sins that block expand
So, what are the challenges that need to be addressed so that you can expand those landed deals at the forecast value and within the expected timescale?
- The mind-set and tactics of the sales team is locked on a land strategy ignoring the fact that expand needs a different skill set
- The customer has not committed to expand in any defined timescale because the sales team never raised it for discussion during the land sales cycle
- The first order is not successfully deployed because of either a shortfall in expected functionality or the timescale to deploy was longer than expected
- A lack of follow up after the first order has been landed means that the expand sales cycle has to start again from zero
- There is no link between the first landed order and the customer’s business priorities and the customer has no visibility of the benefits of your solution
- There are a lack of ‘gearbox’ ratios for average timescales from the date of the first order – to when the customer is ready to place a second order which creates unrealistic expectations of when expand orders can be accurately expected
- There is no post sales audit of the achieved business benefits of the first order to demonstrate value of the first order and support the expand campaign to win more orders
In my next blog, I’ll look at the key three actions required for a successful expand campaign and discuss the most effective sales structure. Should you have a separate expand team or can one team cover both land and expand?
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