In the early stages of a SaaS company, there is just one sales team – the Account Executive team – that owns both new and expansion revenue goals.
As the organization evolves, there is an increased focus on Net Revenue Retention (NRR) and the ability to expand revenue through up-sells and cross-sells. When this expansion revenue base becomes sizable (say a few $M in expansion revenue potential annually) companies start to think of the right strategy to drive expansion deals.
The question that comes up then is, “Should you let your Account Executives close expansion deals or build a dedicated Account Management team?”. And an even bigger problem – “Where does the Customer Success team fit into all of this?”.
Your search ends here. I have put together below, a framework to determine the ownership for revenue on expansion deals.
There are two main factors that guide the thought process on this:
- Complexity of the initial deal closed
- Effort required to close the expansion deal
Complexity of the initial deal closed
Complexity of the initial deal can be measured in a few ways:
- Length of the sales cycle
- Size of the customer
- Annual Contract Value (ACV) of the initial deal
Typically, all these three factors are correlated. Larger ACV deal sizes are associated with customer organizations of larger size, which require a longer sales cycle to close the initial deal. The longer the initial sales cycle or larger the ACV, typically the more complex the initial deal is.
Effort required to close the expansion deal
The type of expansion deals that happen can be categorized into two types:
- Organic (revenue expansion happens because of the inherent structure of the initial deal)
- Inorganic (revenue expansion happens because of purchase decisions taken at the customer organization post-initial purchase)
In the case of Organic revenue expansion, there is minimal sales effort required and they happen as a benefit of increased consumption of the product or price increase set up as part of the initial deal.
In the case of Inorganic revenue expansion, it could be broken down further into two:
- Same product, same buyer: Nudging the customer to a higher pricing plan that offers more functionality within the same product or use case. The decision maker here is the same person/team as the one in the initial deal. However, there is still some convincing that needs to be done before revenue expansion can happen.
- Different buyer or Different product: These are cases where the same product could be sold to a different team within the customer organization (eg. internal helpdesk software sold to different departments like IT team, finance team, HR team etc) or, alternatively, selling a different product/solution from your company to the same/different buyer. These cases are the hardest forms of revenue expansion, as it may involve building a use-case from ground up and the customer is no more than a warm lead to start off.
Framework for revenue expansion deals
Putting both of these together, here is a framework to determine ownership for revenue expansion deals
For organic revenue expansion, it makes sense to have Customer Success own the expansion in addition to renewals. The continued consumption of the product is based on the assumption that the needs of the customer are met and they are happy in adopting the solution further. This falls right in the alley of Customer Success and they are best suited to own this.
Some organizations, though, who sell to large enterprises (multi-quarter sales cycles for the initial deal), retain revenue expansion ownership with the Account Executive even if the expansion efforts are minimal. The complexity of the initial deal warrants heavy initial effort and customer stakeholder mapping to win the deal. Also, typically, the fruits of the efforts taken by the Account Executive do not reflect in the initial ACV size. By retaining the revenue expansion ownership, the thought is that the Account Executive is sufficiently incentivized to put in that massive initial effort.
On the flip side, wherever there is a lot of effort required to close expansion deals, it makes sense to invest in an Account Management team. There is considerable sales effort involved in convincing a new buyer in the customer organization or even convincing the existing buyer of the new use case from ground-up. This makes the team pursuing the expansion deal, pretty much a hunting team looking for opportunities within their defined customer set.
You obviously do not want the Customer Success team to do this. You also do not want to divert the focus away for the Account Executive team from new business. If revenue expansion potential is something that you are betting large on, invest in a dedicated Account Management team for such expansion deals.
For all cases with moderate effort of expansion, what I have seen is a split of ownership between Customer Success, Account Management and Account Executive teams, typically determined by the size of the customer.
Like all frameworks, take this as a base and apply your own company specific intricacies. Your company may have one or more of such combinations of deals. Think about the stage of your SaaS company, the $ expansion revenue base and potential, the way you would like your customers to engage with your company etc. before taking a final decision.
This post was originally published on SaaSSales.io.