Bessemer Ventures has a mini pricing course that I’ve been taking. (Yes, I still study pricing and different perspectives.) In lesson 5 they have a chart that I wish I had before writing my book, Win Keep Grow. They present the costs of revenue that comes from new logos, upsell/cross-sell, usage, and renewal. These correspond well with Win Keep and Grow revenue buckets.
Win: $1.13 (New logos)
Keep: $0.13 (Renewal)
Grow: $0.27 (Upsell/cross-sell) and $0.20 (usage).
These are interesting data points, but now let’s make sense of them. First, winning new customers is the most expensive revenue to earn. Of course you have to do it, especially when just starting out. And if the cost of winning customers is much lower than the lifetime value then you should continue to focus on new customer acquisition.
Second, the cheapest revenue is renewal, or Keep. This makes sense. As long as you offer solutions that your customers value, they will continue to buy from you. Win and Keep are the two revenue buckets that all subscription companies know they have to manage.
Finally, notice the cost of growing a customer is much lower than the cost of winning a customer. This is true if you grow them through upsell/cross-sell or through increased usage. The sad truth though is that far too many companies don’t plan for this inexpensive revenue. Growing customers is never an urgent problem, so it is often ignored, but it is extremely powerful if you want to grow your business quickly.
How do you plan for growing customers? There are three value levers you have that drive your ability to get more revenue from your customers. Choose a market segment that you know very well and deliver a ton of value to them. Choose a pricing metric so that when customers use your product more and receive more value, they happily pay you more. Carefully craft your features into packages so buyers have incentive to upgrade or buy more. You can read more about these value levers and growing customers in my new book Win Keep Grow: How to Price and Package to Accelerate Your Subscription Business.
My advice: think hard about how to grow your current customers. It’s your lowest hanging fruit.Tags: pricing foundations, pricing metrics, pricing skills, pricing strategy