When you implement automated billing software, you think you're just getting software that will automate your billing process, right?
Well, yes, but also…
Billing software is no one trick pony, my friend. It's not just a pretty face. It's...well, you get the idea.
In actual fact, an effective automated billing system is a secret weapon for business growth. That's because billing software doesn't just solve operational problems with an array of features and functionalities. Automated billing systems help bring efficiency to the entire billing process, from pricing implementation to customer signups, to recurring invoices, to customer expansion and retention.
Today, we'll be focusing on how subscription billing software helps you generate expansion MRR. It offers valuable analytics and insights that, used right, can be the key to generating additional revenue from existing customers.
1. Target the customers most receptive to an upsell
One way to increase your expansion MRR is by upselling your existing customers. But, not all of your customers are going to want an upsell. Targeting the wrong ones will make it pretty obvious you don't understand their needs. This is likely to result in a negative customer experience and could damage brand trust.
Then how do you know which customers to target?
You’ll need access to data that shows revenue contributions on a customer level. Any automated billing system worth its salt should provide a visual breakdown of this information in an MRR by customer report.
Then you'd get an idea of which customers:
- are using your product the most and would benefit from an upsell, or
- have room to scale their product usage up.
Combining your billing software insights with first-hand knowledge from regular customer success check-ins will allow your teams to focus their resources on the right opportunities.
This knowledge can have an indirect influence on expansion MRR, too. It provides your marketing team with fit data: insights into your business’s ideal customer profile (ICP). That means they can tweak campaign messages and fine-tune marketing efforts to bring in better-fit customers.
These types of customers have higher engagement levels and deliver more lifetime value (LTV). They'll be more likely to grow with your business through add-ons or upsells, increasing your expansion MRR into the future.
2. Leverage historical data
We know humans are creatures of habit and groups of similar customers often act in the same way. This is especially true according to certain triggers, or at certain stages of their customer lifetime.
So it stands that historical data should allow us to predict the future behavior of similar customers.
You can practically apply this concept by using historical expansion MRR reports to find current customers that may be receptive to an upsell. Let's say customer X and customer Y are owners of SaaS startups. Their businesses are in the same industry and have similar business needs. This is reflected in various data points like software usage and customer payment data.
If customer X just benefitted from upgrading their plan, then customer Y may also.
And there you have it! Another way recurring billing software can grow your expansion MRR, increasing revenue without increasing customer acquisition costs (CAC).
3. Run pricing strategy experiments
You might have the perfect upsell, but if it's the wrong price then you're simply not going to see much uptake. Chopping and changing your pricing plans too often can make it seem like you don't have confidence in your product, which can devalue it in the eyes of your customers.
Picking a price and sticking with it won't do you much good either. The general consensus is that you should revisit pricing at least once a year, if not more. Case in point: Salesforce's master service agreement used to warn of a price increase of up to 7% at every renewal (nowadays there's even no percentage cap).
An automated billing system enables you to run experiments with new pricing strategies. This means you can expose small customer cohorts to upsells, add-ons, and cross-sells at various price points and gauge their reactions.
Let’s say your starter plan includes 5 features. You could try moving to a more a-la-carte pricing strategy, unbundling the plan so only 3 features are included by default and the other 2 become optional add-ons. If you do this in a way that produces slightly more revenue for your business—and your customers take no issue—then you’ve discovered an expansion MRR hack!
But that’s not the only way pricing experiments can help with your expansion MRR. When customers want to cancel, a common strategy we see is SaaS businesses downgrading them to a lower monthly fee, often for data storage only. This is contraction MRR because the customer is downgrading, but it makes it super quick and easy to upgrade them again in the future. This group of customers presents you with a unique opportunity to run pricing experiments and discover what model, or offer, would covert them back to the higher-tier plans.
This doesn’t just grow your expansion MRR, but it also reduces churn. Win-win!
4. Empower your customer success and sales teams
Staying with the theme of churn, let's talk about customer experience. Every interaction your customer has with your business, however big or small, plays into how they view your brand. And how much they like and trust you directly influences how much they're willing to spend with you.
When your customer success and sales teams have richer data about the customers they're communicating with, it enables them to be more strategic in their approach to upsells, cross-sells, add-ons, and even subscription reactivations.
Yes, you read that right. Even customers who have canceled their subscription can end up contributing to expansion MRR. The reason a customer canceled might be that:
- their needs exceeded the features or limits of their plan,
- they didn't fully understand your product, or
- payment collection failed which prompted an automated cancellation.
Any of these cases are a potential opportunity for your sales or customer success team to work their magic with a cross-sell or up-sell.
Automated billing software will provide them with general customer subscription information, such as purchase and subscription history and lifetime value (LTV). They can use this data to provide a better overall customer experience, decreasing your churn rate.
Basically, happy customers tend to stick around for longer. With the hopeful assumption that your customers' businesses will grow over time, their product usage should increase too. If you have the right pricing strategy in place, this will grow your expansion MRR.
5. Use high-level data
It's clear that data is essential to optimize your business strategy, and an automated billing system is a key part of your tech stack that gives you that information.
Your automated billing software can provide various reports—such as revenue, customer growth, and churn—that are helpful for getting a high-level idea of your business’s current situation.
These reports, plus projected revenue reports, are helpful for executives and team leaders to create an overarching business plan, including a strategy for approaching customer expansion.
How important is expansion MRR?
For most SaaS businesses, the flow of new customer acquisition slows down over time. It's natural—every market has its limits. Despite that, 7 out of 10 SaaS executives and founders said they'd choose net-new growth if they could only pick one piece of their business to focus on.
That mindset is counterproductive when you consider that expansion MRR increases revenue without increasing CAC and is a sign of good overall business health, customer loyalty (low churn), and higher LTV.
LTV to CAC ratio is a good measure of a SaaS business' efficiency. Data shows that the most efficient businesses generate around 30% of their revenue from expansion—on the high end, even nearly 40%.
Harness the power of your automated billing solution
The data is evident: expansion MRR is essential for long-term growth, but it requires a proactive strategy.
It's time you stopped looking at your billing automation system as simple billing software, and started recognizing it as a full-scale subscription management software and an integral part of expansion MRR growth.