New customer acquisition, upsell, cross sell and renewals
A Head of Procurement for a large technology firm once said the following to me: “Being the incumbent is both a blessing and a curse. We know your strengths, we also know your weaknesses. With anyone else we only know what they tell us.” At the time we were approaching a contract renewal and the firm was deciding whether to put the contract out to tender. We’d been working with them for two years and the relationship had been very successful. But the firm has also gone through a number of changes – not least being acquired by a much larger organisation. In the end they decided there was no need for us to re-pitch. The quality of our work had proven out that we could consistently deliver and given other uncertainty within their organisation they felt continuing our partnership made more sense.
In this situation our biggest weakness was that we were perceived to be more expensive than potential competitors. Sometimes, being more expensive can be a deal breaker but on this occasion it wasn’t. Because we had proven that we could deliver consistent high-quality value, the decision point between us and another vendor was between predictability and potential. Yes, there might be a vendor that could offer lower costs but an experienced procurement leads understands that the costs at pitch stage don’t always translate when the work is won. A lower hourly rate for content development is easily lost when more hours are billed. We, on the other hand, had demonstrated our estimating and delivery model and so were lower risk. Given the effort that goes into proper RFP and procurement exercises, the time to onboard a new vendor and get them up to speed, and the potential that it could result in a decrease in quality for minimal cost benefit, the answer was obvious. We were more expensive but we delivered good value.
When selling to an existing customer they will have a perception of you, for good or for bad. New customers similarly will form an idea based upon what they hear in your pitch, in the media and from your website, but with much less knowledge and context. In either situation, it may not be accurate or fair, but they will believe it nonetheless. Remember: the product is in the mind of the buyer. Communicating with new and existing customers means understanding the context gap they may have. Did they buy your solution before you had key capabilities – do they see you as a functional provider rather than a strategic one? Were there implementation challenges – how does this affect their perception of your value? Has another vendor moved into ascendency and is seen as more innovative? Whether there is a reality behind these perceptions makes no matter – how you address them does.
Defining new customers, cross-sell and upsell in the language of buying centres might seem obvious but I’m going to do it anyway. Let’s just call it bridging the context gap to avoid any future confusion. A net new customer is any buying group within an organisation you have not sold to before. An upsell is an additional solution sold to a buying group you have already sold to in an existing customer. And a cross-sell is a new solution to a buying group you have not sold to in an existing customer. Definitions over, thanks for understanding.
In large enterprise organisations its perfectly possible for buying groups to end up disconnected from their peers – particularly for point products that have no strong joint value proposition to connect them. What you define as a cross-sell to a new buying centre might need the same marketing engagement as a net new customer would. One of the reasons enterprise Sales teams employ strategic account plans is so they can remove randomness of engaging disconnected buying groups and plan coordinated expansions paths between stakeholders and functions. ‘Expand within’ and ‘expand from’ sales motions will normally start by demonstrating value within an initial solution area before Sales engages other buying groups. For some B2B enterprises Sales team, the cross-sell and upsell strategy is foundational: an initial sale to get in the door, which is then followed by an expansion motion. For these organisations it may be a specific strategy whereby initial deals are discounted and the money is made in the follow-up deals.
Even if your product or service portfolio is diverse and interconnected, it is likely that some solutions will still be more applicable to new customers as a first purchase and some solutions will be more relevant to existing customers. Identifying the gateway products that are the first point of purchase for new customers will allow you to prioritise messaging and activity appropriately. These gateway solutions form the basis of your net new customer land motions, while the remainder your solutions may draw in relatively few net new customers and form the focus of your cross- and upsell expansion motions to increase share of wallet. Understanding and prioritising sales motions is an important way of driving efficiency both for Sales and Marketing. Deploying resources and budget on new business opportunities with a solution that is most commonly sold as an upsell to an existing buying group is unlikely to drive an efficient return on investment. Solution mix might evolve with time so is important to constantly re-evaluate.
The Context gap for new customers will understandably be different from existing customers. Net new customers may have only a passing experience of you based upon what they’ve read or been told. Meanwhile buying groups you’ve sold to already should have a perception of the core value, strengths and weaknesses of your solution. For a new customer the context gap may be some unique aspect of your differentiation or value, whereas a buying group within an existing customer may believe they understand this but perceive your solution as complex to implement – perhaps because they chose not to pay for expert implementation services. Recognising that different stakeholder groups will have differing perspectives and thus potentially different context gaps should influence how you develop inception plans to drive audience mindset shift.
Service contract renewal
The goal on any service contract should be to extend that contract for as long as possible with as little possible reduction in value over time. I know, none of us likes the way organisations tend to ignore their existing customers while continuing to offer wonderful new incentives for new customers. Its infuriating and can leave you feeling cheated – and sometimes it’s a very short-term mindset. Anything that drives customers away – both in the short term and definitely in the long-term – should be considered carefully, but as Byron Sharp’s seminal book How Brands Grow demonstrates, brands grow by acquiring new customers. You should always be increasing the number of buyers who have heard of you and showing up in as many buying groups conversations as possible. For your existing customers, your biggest fans are going to buy and renew with you anyway; be careful not to subsidise purchases from customers that would have happened anyway just for the sake of loyalty. Claiming marketing success for a lead or purchase that would have been created and closed without any marketing involvement looks great on a dashboard but adds little to actual business value.
Maximising profit from existing customers for as long as possible is the only sensible commercial practice while also acquiring new customers as rapidly as possible. This phase of a customer-vendor relationship is the maturity stage. Customers are achieving maximum value from the service and have little strategic requirement to change. Just as important a helping customers achieve maximum value is helping customers understand that value. People make emotional decisions for logical reasons but perception of value is as important as the value itself. To deliver this, focus on three areas:
Help customers decrease adoption time – faster time to value helps demonstrate the business case early. Not only does this set a positive precedent quickly, but it starts a longer window of opportunity to demonstrate business value at future review points.
Help customers make use of what they have paid for – unused licenses or functionality adds to the perception of cost. Not only does this reduce the quality of the business case, but it can harm renewals by making services look less critical due to poor adoption.
Replay value back to customers regularly. Repetition is key to driving resonance. A business case will have been created before customers introduced the service, and aligning results back to this with savings and benefits realised will help reinforce the necessity of maintaining the service.
Capex refresh
Capex refreshes aren’t really renewals, they’re follow-up purchases, but while capex refreshes follow more closely the dynamics of net new purchases, the decisions on whether or not to stick with current suppliers are the same as those of service contracts. The decision factors will circle around whether the current supplier represents business value, whether the current supplier and solution are fit for purpose and whether there is a strategic alignment with the supplier. When they need to make a decision, a customer will likely have evaluated their options along these lines:
Should I stick with the same vendor and buy the same product again?
Should I stick with the same vendor and buy a different product?
Should I buy from a different vendor?
Here, again, we see the double-edge sword of existing vendors being better known than new providers, with both the positive and negative connotations that go along with this. Demonstrating value that has been delivered should remain the strategic priority for vendors in all communications. Doing this at the point of contract renewal is good but, depending upon the relationship with the customer, it can feel self-serving and undermine the objective: ‘you’re telling me that now to get me to spend more money’ can become the unintended response. Instead, an organised customer communications plan needs to be created over the course of the product lifecycle. As with service contracts, this model can also help to identify new sales opportunities, or new opportunities for faster upgrades or earlier refreshes.
For both capex refreshes and service contract renewals, the goal of the communications should be to deliver this simple inception device: “This supplier delivers an important business value I couldn’t get elsewhere.”