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As part of Solutions Review\u2019s\u00a0Contributed Content Series<\/a><\/span><\/span>\u2014a collection of contributed columns written by industry experts in maturing software categories\u2014John Stamos, Principal at Alexander Group<\/a>, explains how companies can drive profitable growth by developing and executing an expansion strategy.<\/strong><\/em><\/p>\n The Rule of 40 Growth and Profitability index has long been used to gauge successful and sustainable SaaS companies. Organizations with a combined Annual Recurring Revenue (ARR) growth and EBITDA margin above 40 percent command higher valuations and represent an outsized portion of market capitalization. <\/span>While the 40 percent principle equally recognizes growth with profitability, in today\u2019s uncertain macroeconomic environment, and as market valuations are increasingly being scrutinized, many commercial leaders are shifting their focus from driving growth at all costs (the ARR part of the equation) to driving <\/span>profitability<\/span><\/i> within their go-to-market efforts.<\/span><\/p>\n Sales leaders are tasked with efficiently deploying their investments. While companies often look to trim expenses in the organization, they can inadvertently curtail growth. Companies that aspire to grow must focus on profitable growth. To optimize their sales investment, leaders are turning to an expansion selling approach that supports reps in selling to current customers while leveraging existing relationships as an alternative to consistently acquiring brand-new logos.\u00a0\u00a0<\/span><\/p>\n Defining and deconstructing expansion use cases is the first step in determining a customer-focused sales strategy. At a high-level, expansion plays are typically categorized into eight upsell and cross-sell strategies:<\/span><\/p>\n Based on the product configurations and types of buyers and users, sales organizations can prioritize sources of expansion growth differently. For example, a single product company whose solution offers multiple tiers will likely focus on the adoption upsell, usage upsell, and new buyer cross-sell. Conversely, companies with a broader product portfolio with many centralized buyers and users will likely focus on multi-product cross-selling or platform selling. Finally, macroeconomic conditions may impact expansion priorities across all customer types, resulting in new strategies.<\/span><\/p>\n Sales organizations should direct reps where to focus their efforts using a top-down prioritization of the primary expansion plays. This approach will enable the sales organization to deploy appropriate resources in a coordinated manner that drives profitability.<\/span><\/p>\n Expansion selling is essential but must be thoughtfully integrated into the sales organization. Here are three key tactics that CROs and Sales Leaders can use to efficiently and effectively drive expansion efforts:<\/span><\/p>\n Budgets are increasingly under scrutiny. Whether buyer stakeholders know it or not, incremental expenses will also require compelling ROI in a cost-constrained model. Crafting the appropriate message that influences stakeholders will require additional effort that includes:<\/span><\/p>\n GitLab CRO Mike McBride understands the value of appropriate messaging. GitLab Inc., whose DevSecOps platform changes the way cross-functional teams collaborate to build software faster, focuses on clearly articulating how their solution reduces customer development costs.<\/span><\/p>\n “When there is a new budget holder upstream, whether executive leadership or finance, that didn’t scrutinize opportunities in years past, we have to enable our champion (the customer influencer) to pitch this new stakeholder on the cost savings and how this initiative drives efficiencies,” McBride says.<\/span><\/p>\n Product users require specific value messaging, as do senior executives who look at the ROI and overall business value. McBride believes clear messaging pays long-term dividends: “It’s different, but it’s good, disciplined selling. People got away from it in the boom times, but it’s also an opportunity to build back the capabilities for the next 3 to 5 years.”<\/span><\/p>\n Leading companies use digital marketing technologies to capture sales and marketing insights and identify likely new prospects. Organizations with a prescriptive and diligent approach to expansion selling can apply these techniques to grow their existing customer base.<\/span><\/p>\n For instance, some firms now use telemetry data to inform the sales organization when to employ sales motions. Insights can reveal if customers are approaching their contracted usage limit or licenses. Data can also show which features a customer uses and indicate if they could benefit from another feature set. Combining telemetry and firmographic information can also set the stage for appropriate use cases. <\/span>For example, similar customers sometimes start consuming product B after product A, indicating expansion opportunities. Since organizations are looking to optimize their sales resources, driving incremental yield through data insights can help companies achieve increased profitability and drive accelerated growth.<\/span><\/p>\nExpansion Plays Focus Sales Rep Efforts<\/b><\/h3>\n
Upsell<\/b><\/h4>\n
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Cross-Sell<\/b><\/h4>\n
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Three Tactics that Drive Expansion Selling Success<\/b><\/h3>\n
Tactic 1: Identify All Buyer Stakeholders to Craft Appropriate Messaging<\/b><\/h4>\n
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Tactic 2: Apply Marketing Techniques and Insights Toward Existing Customers<\/b><\/h4>\n
![](\"https:\/\/solutionsreview.com\/marketing-automation\/files\/2019\/02\/marketing-automation-bg-speedbump.jpg\" "\\"Marketing")
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