So You Want to Grow Revenue? How to Tilt Up Your ACV

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So You Want to Grow Revenue? How to Tilt Up Your ACV

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Zendesk has become the darling of the software as a service (SaaS) industry. Following a lucrative IPO last May that raised about $100 million, the company has handily beat analysts’ financial projections.

Zendesk has become the darling of the software as a service (SaaS) industry. Following a lucrative IPO last May that raised about $100 million, the company has handily beat analysts’ financial projections. Much of that impressive success comes from the shrewd ways in which Zendesk has managed its annual contract value (ACV). For the past two years, Zendesk has grown its ACV by at least 30% per year. To understand ACV growth better, we studied dozens of SaaS companies with annual recurring revenues of $2M to $25M. We specifically tracked their ACV figures and found that successful firms were able to “tilt up” their ACVs, achieving growth that was three or more times that of other SaaS companies.

In an earlier blog, we discussed when to tilt up. In this blog, we focus on how firms can grow their ACVs by at least 10% from one year to the next. Our research indicates three main drivers:

  1. Increasing prices
  2. Upselling and cross-selling
  3. Adding bigger customers (with larger contract sizes).

1. Increasing Prices

Increasing prices can be a major business driver and is especially important as a product’s value improves rapidly.

One tactic is to keep prices high from the start but offer large discounts to early customers who agree to provide feedback to help improve the product. Such discounting is an easy way to quickly (and opaquely) lower the pricing for a temporary amount of time.

In our research, we found that “tilt up” companies often have discount maximums that are two times that for other firms. The trick here is to increase prices from those discounts without alienating customers. Make sure to message this appropriately.

2. Upselling and cross-selling

Upselling and cross-selling helps grow revenues in existing accounts and is a critical driver of customer lifetime value (CLTV). (By “cross-sell,” we mean a customer that buys a separate offering from the same company versus buying more licenses or seats of the same offering.)

All of the firms in our study had very similar upsell rates, suggesting that they are all doing a good job of growing their businesses along with their customers. But the “tilt up” companies tend to cross-sell to about 5% of their customers per quarter whereas other companies have almost no upsell by comparison. To accomplish that, the “tilt up” companies had about twice as many salespeople dedicated to revenue growth within their existing customer base as others.

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3. Selling to new, larger customers

Selling to new, larger customers is the final way to grow ACV – a process that requires an efficient sales process. Our data indicate that “tilt up” companies tend to have shorter sales cycles (two versus four months), double the annual customer growth rates (60% versus 30%), and lower customer acquisition costs (lower by 20%). But having a more efficient growth engine is only half the battle. “Tilt up” companies are more adept at engaging higher-value customers by tailoring their value proposition and by focusing on more senior buyers who have the ability to make larger purchases. Zendesk, for example, started off by focusing on the small and medium business (SMB) market, but the company has since begun to target larger enterprises with a “land and expand” strategy: first it sells into a single department or location and then grows by adding other business units and geographies within the same corporation and by upgrading those customers to more expensive subscriptions with richer features. As part of that strategy, Zendesk has been investing in expanding its field service team to handle the account management of large corporations.

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