Land vs. Expand: Finding the Right Balance for Your Salesforce

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Land vs. Expand: Finding the Right Balance for Your Salesforce

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Our new research confirms the conventional wisdom that "land and expand" is a good strategy for revenue growth, but SaaS companies should be careful not to devote too much of their precious sales and marketing resources to existing customers.

We all know that landing any new customer is something to celebrate, particularly because you can then land and expand, using sales and marketing resources to grow revenue from that same customer. But how much precious salesforce time should go to cross- and up-selling existing customers, versus new logo acquisition? We answered that question using SaaS Radar, Fuel By McKinsey’s proprietary database of nearly 200 SaaS companies. Our analysis suggests that companies need to take a Goldilocks approach—not too little, but not too much. Companies that devote about 10-25% of their sales resources to farming instead of hunting do best.  If you devote more than that, the upside is less than it would be from devoting those resources to new customer acquisition, and the opposite is true if you invest less than 10%.

Source: Fuel By McKinsey SaaSRadar.

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In our post “Want to Accelerate Value Creation?” we described our approach to determining how efficiently a SaaS company is growing—we measure how much net new ARR each dollar of sales and marketing generates. Using that metric, we determined that if more than 25% of your customers are upsold in a quarter your growth efficiency is over 1.6. If less than 10% of your customers generate new revenue for you in a quarter your growth efficiency is less than 1; this means you are not generating sufficient new ARR to cover your sales and marketing expenses.  At the same time however, since upselling distracts from new customer acquisition, it is important to find the right balance. Your growth efficiency is at its optimal level when you invest between 10-25% of your existing sales resources on upselling and cross selling, as seen in the chart above.  This doesn’t mean you shouldn’t invest in customer success, but your salesforce should be spending the majority of its time on new logo acquisition.

About the Authors

Junaid Mohiuddin Headshot

Junaid Mohiuddin

West Coast Market Lead

Junaid leads our SaaS practice and helps startups grow their enterprise value.

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Judy Wade Headshot

Judy Wade

Global Lead

Judy Wade is an entrepreneurial leader with a passion for creative problem solving and getting things done.

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