If you’re involved in an early stage software as a service (SaaS) business, having a great product that addresses a need is essential.
But it’s not enough.
You need to build relationships with customers who are willing to pay you money for your product. You need to use land and expand strategies.
What’s a land and expand strategy?
But your product is unknown, and it’s highly unlikely that the significant majority of prospective customers will be willing to ‘take a chance on you’.
So, you need to start small.
You need to show what your product can do, winning a company’s business through excellent service and meeting its needs better than any other competing software.
From there, you can earn more business across the organisation and get bigger deals – you have landed, and are in the process of expanding.
And that’s what a land and expand strategy is, and how it works.
What a land and expand strategy doesn’t look like
A land and expand strategy isn’t about natural organic growth.
It’s about building a long-term sales strategy and a sales team that works hard to create long-term relationships with the high-powered decision makers that will bring in the cash over the long run.
It’s not just about users using your product, but the organisation adopting it at the account level and you getting C-level buy-in.
Implementing a SaaS land and expand strategy
Here’s what you need to consider when it comes to building long-term customer value and implementing the strategy.
- SaaS isn’t about selling large upfront deals. Customers will expect to try before they buy. You might let customers use the product for a free trial period or a limited set of functions.
- If the user decides to pay a subscription fee for the product, you’ve landed them. But that’s just the beginning. Closely watch if you see users from the same company use your product. After you get a certain amount of users, you may want to expand the relationship.
- On a subscription model, you have to re-earn business. You need to think about retention, together with building a decent sales model. If you can’t create value, your customer will leave for a company that offers a better service.
- Once you’ve built trust with business customers, expand your influence and sell in your product for any other issues they need to solve, across different departments and new projects. You’ll need to look out for every sales opportunity.
- Make high-level connections inside each customer – adapted sales tactics could potentially work well here – such as outreach, learning sessions, lunches and presentations.
- If you’ve maintained the relationship, your customer will look to you for any new opportunity that comes – they may decide to grow themselves, or they may be part of a conglomerate with the potential for bigger deals.
- Like a traditional sales funnel, make sure you have stages, activities and objectives.
SaaS metrics to track for a land and expand strategy
These include revenue metrics, such as:
Contracted Monthly Recurring Revenues (CMRR). CMRR is considered the most important for a SaaS business tracking the success of a land and expand strategy, as it shows the predictable, recurring revenue component of a SaaS business.
Revenue growth rates. Revenue growth rates can show the growth coming from recurring revenue momentum as part of your land and expand strategy business investment.
Revenue per subscriber. This measure shows you the revenue at a per user rate, which can highlight which customers to target for increased land and expand investments.
You can also track customer metrics, such as:
Cost of customer acquisition (COCA). COCA is a metric that includes all the sales and marketing expense aimed at bringing in new customers.
Customer lifetime value (CLV). CLV is the amount of profit a customer is calculated to deliver a SaaS business over the lifetime of the customer relationship.
CLV is an important metric as kit helps you understand what you can spend on a land and expand strategy to acquire and retain customers, as well as understand which businesses are more worthwhile to target.
Churn or renewal rates. Land and expand strategy strongly depends on you keeping your customer relationships going, so you’ll want to keep your churn rates low and your renewal rates high.
Typically, SaaS businesses are looking for renewal rates in the 90+% range.
And expense and profitability metrics such as:
Total cost of revenue. This includes the expenses related to the SaaS product and SaaS delivering services. Because it contains sales and marketing expenditures, you can gauge the success of investment in a land and expand strategy.
Conclusion on SaaS land and expand strategy
Early stage SaaS businesses will typically spend more on sales and marketing than traditional companies because you’re trying to acquire and retain customers, as well as win more through tactics such as land and expand.
It’s great to put together a sales team and win deals, but unless you keep your customers onboard, you won’t be able to build the long-term relationships that will help you win even more significant customers.
If you can create customers who champion you and like the product and service you’re giving, that’s the dream scenario.
To properly understand whether your land and expand strategy is working, you’ll need accurate and real-time visibility through an automated financial system, as this is the most efficient and effective way to track the metrics and key performance indicators you’ll need.
The ability to compile the data across your SaaS business and benchmark it in an automated fashion allows you to scale operations quickly and efficiently.
With the data in hand, companies have greater predictability and a better ability to forecast revenues, expenses and cash flow than ever before.
Also, benchmarking these metrics can provide early warning signals internally about performance problems with your land and expand strategy, which may be corrected, once identified, to get back on track.
This is especially true in the SaaS world where executives rely on careful monitoring and benchmarking of the KPIs specific to SaaS, including the many non-financial operating metrics.
These non-financial but critical operating parameters would be especially difficult to track accurately manually or with simple spreadsheet tools.
Managing SaaS metrics through the company growth lifecycle
Learn about the key metrics that are required to fully understand the health of your SaaS company and determine the best ways to optimise the business.