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Revenue Optimization Part 4: Revenue Expansion 101

Mary Grothe April 5, 2022
Revenue Optimization Part 4: Revenue Expansion 101 by Mary Grothe, CEO of House of Revenue™

If you’ve been following our Revenue Optimization series, you’ve learned what revenue optimization is, the challenges you could face optimizing your revenue depending on your business type, and how to maximize your revenue through The Customer’s Journey. Now, you can put the icing on the cake by enabling revenue expansion.

Let’s dig into revenue expansion by first defining what it is. 

Expansion revenue is any revenue that is generated in excess of a customer's initial purchasing price or contract. Expansion MRR measures the additional monthly recurring revenue that existing customers generate.

There are several ways to expand your revenue successfully, and here are a few of them. 

#1 Expand Revenue Through Your Existing Customers

If we're talking about optimizing revenue, one of the greatest areas you can optimize is expanding revenue with your existing customers. You should be able to identify the revenue upsell opportunities by creating a chart that indicates how many of your customers have only some of the products or services that you could sell them. Identify those that haven't yet purchased the full suite. Then, calculate the unsold revenue per customer that you have in your current customer base. Create an account management plan per client to figure out how you will secure that revenue. 

For example: Your customer currently pays $100 per month for your product or service. Then they decide to upgrade their plan to $200 per month. The expansion revenue would be $100.

You can also associate the expense of an account manager to that exercise and set a quota or goal and a commission payout to obtain that additional revenue. What is that worth to the company? 

#2 Help Your Clients Become Your Biggest Advocates

In The Customer’s Journey, the last stage is Advocacy. How are you optimizing revenue through advocacy? Have you built a client incentive program that meets the client where they are and gets them excited to refer you, or are you relying on your sales team or account managers to ask your clients for referrals? Which by the way, they don't do, and when they do, which is rare, it's awkward.

You’ll often hear your account managers say, “Who else do you know that could benefit from using our product or service?” Sorry, but that's so lame, and people don't want to refer in that scenario. They want to be enabled to refer because they absolutely love your product or service. Plus, you've created a pathway that is super simple for them to become an advocate, and hopefully, they get something in return.

Old Industry - New Tricks: A Case Study

Short story. I'm a gluten-free vegan, and there's a pizza place by our office in Denver. As a gluten-free vegan, I have very few restaurants that I can go to and actually pig out and eat something downright delicious. Usually, I'm stuck with eating a salad, but this pizza place has the best gluten-free, vegan pizza I've ever had in my life. I had purchased it multiple times. Then one day, I saw that they had an app, and I downloaded it. I started ordering through the app, and the next thing I knew, I had a pop-up on my screen that said, “use this link to refer your friends and get a free pizza.” The link automatically opened my text app and populated a message for me to send to my friends. It incentivized me to keep referring: for every two people who downloaded their app, the new user got an order of free cheesy bread, and I got a free pizza. 

Do you know how easy they made it for me to refer? I sent it to everybody that I knew, and let’s just say I've been eating a lot of free pizza. It's incredible, and they made it simple for me. Granted, it's usually easier to think of a client incentive program example when you're looking at a B2C sale, AKA the consumer-driven sale. 

If you're a B2B company, challenge yourself to figure it out inside your business. How can you create the same type of easy way to get people excited about referring? Do they get a free product? Do they get coupons, points, or reward dollars towards their next invoice? What exactly do they get? Make it easy for them. Make an automated link inside your technology where they can just push a button and invite other people to the platform. It should be the simplest thing that you create, and it should yield significant returns. Through this process, you’ll have developed the CSQL; the Customer Success Qualified Lead. 

#3 Enable The CSQL

Quite a few business owners and revenue teams have not put an emphasis on their Customer Success (CS) team to drive new leads into the Top of Funnel. Hopefully, you have MQLs, marketing qualified leads, and SQLs, sales qualified leads, but who is in charge of driving CSQLs, customer success qualified leads?

When you're looking at expanding revenue, this is often overlooked. In fact, because CS professionals typically are not salespeople, they are focused on the day-to-day; they are focused on customer management, retaining relationships, and critical elements of the customer experience. However, they typically don't have a quota, goal, or incentive plan to drive new leads into the Top of Funnel. So, how do you incentivize your Customer Success team? Here’s an example. 

Reflect on the “Old Industry - New Tricks” case study above. The company placed referral power at my fingertips, and they got me excited to refer when they incentivized me with the reward of a free pizza. I'm incentivized as a customer because I love it, and they made it really easy for me to refer with the app. Now, ask yourself, ‘What more could they be doing?’

Let’s shift our attention to the staff at the counter. What if when they're ringing up my order, they ask, “Have you downloaded the app? There's actually a way for you to get free pizza if you download it and refer your friends!” This would be advocacy on the Customer Success side.

By striking up a conversation with a customer about downloading the app, they are creating a CSQL.

They are driving revenue to the Top of Funnel, because they are advocating on behalf of the company to build that momentum with the customer. 

While this may be a CPG industry example, think about how you could apply this concept in your business. By enabling CSQLs, you're optimizing revenue because the cost of a referral, the cost of that lead that came through because the CS person solicited a referral, is so much lower. Think about it. There was no marketing expense, and the sales expense might be less because as a client referral, this person might be a lot warmer, easier to close, and historically, move quicker down the funnel. 

Here’s How You Just Optimized Your Revenue:

Now your client acquisition cost is reduced on the front end because CSQLs come from a paying customer, and hopefully, you've optimized the process to where you don't have a huge expense to get them to refer. Suddenly, you're optimizing revenue at a whole new level because you've reduced the client acquisition cost (CAC). 

Now, there are no marketing costs. There are no sales expenses to get this qualified referral into the funnel. They're not even really coming in the top of the funnel because, typically, referrals are much warmer. Thus, they're already in the middle of the funnel and the consideration stage, leaning toward the decision stage. 

By coming to you as a referral, the cost to acquire that customer is far less. If you continue to optimize your referral process, it will be far less expensive to acquire each new customer than it's ever been in history. 

Bam. Revenue, optimized.

 

Ready to Get Started? Our Revenue Expansion Experts are Ready to Help.

We know it can be challenging to commit to significant investments without a high level of cash flow. However, this kind of investment will set your business up for success and return massive results, both in the short and long run.

You can start small, but you have to invest something into infrastructure, systems, processes, and automation from an early stage if you truly want to optimize and scale revenue. The good news is that the more you invest now, the quicker you will see the results (and the less you’ll have to invest in the future)!

For more information on how our team can help optimize your revenue, reach out and chat with us today. Let’s see if we’re your perfect partner in your quest to build your House of Revenue™.