Land and Expand – 1
The ideal approach for winning in SaaS is to have an exceptional product and GTM (go-to-market) with a combination of growth marketing and sales: content to generate inbound interest and leads, inside sales via sales development representatives, and account executives to close the deals. For the SMB (small and medium businesses) sector, the product needs to be self-service. For the discussion going forward, I will focus more on sales to mid-sized US enterprises where the MRR can be an average of $10,000. To build a $10 million MRR business ($120 million ARR) will therefore need 1,000-odd enterprise customers.
A key challenge for any sale is that the buyer needs to change some well-established habits. This leads to switching costs. So, the ability of the product to deliver a significantly better experience and outcome is important. One approach is to offer an equivalent or better product at a cheaper price. Switching will then depend on the criticality of the product and the friction involved in migrating. The tighter the integration a product has, the higher will be the bar for switching – in which case the RoI has to be significantly greater. In SaaS, product is the key. So, a challenger SaaS company needs to come up with a much better product to even get the conversation started.
The typical sales strategy is land and expand: get into the buyer with a product and then work to expand the revenue either with more seats (end users) or more independently priced features.
Asavin Wattanajantra writes: “If you’re involved in an early stage software as a service (SaaS) business, having a great product that addresses a need is essential. But it’s not enough. You need to build relationships with customers who are willing to pay you money for your product. You need to use land and expand strategies. But your product is unknown, and it’s highly unlikely that the significant majority of prospective customers will be willing to ‘take a chance on you’. So, you need to start small. You need to show what your product can do, winning a company’s business through excellent service and meeting its needs better than any other competing software. From there, you can earn more business across the organisation and get bigger deals – you have landed, and are in the process of expanding. And that’s what a land and expand strategy is, and how it works.”
Norma Makarem adds: “The land-and-expand strategy, also known as “seed and grow”, is when you start with a small deal and use the agreement to form a strong relationship with the company through exceptional service. Then, you continue to sell to the business across different projects and expand your services and profit margins over time. This model allows you to maintain a positive return on investment while growing your business. Over time, you can attract more deals with that client as they require more services and come to rely on your company for its stellar offerings. You leverage your initial sale to highlight your uniqueness, integrity, and proficiency in what you specialize in.”
Rathna Kumar has two very helpful graphics: