Here’s a quick(ish) tip on how to use non-recurring revenue services (training, consulting, etc.) to 2.5x (or more) the recurring revenue you get from a customer.
This tip requires that you have a baseline understanding of Customer Success.
Let’s say you have a customer at $10k/ARR and they’re humming along just fine. If you leave them to grow on their own, it might take 18 months before they’re ready for the next pricing tier or add-on that would take them to $25k/ARR.
By knowing where the customer is on their journey, you can intelligently offer services that can short-circuit their path to the next Success Milestone that has that logical expansion opportunity attached to it, and achieve account expansion much faster than if you left them to grow organically.
Let’s say they hit a Success Milestone at 6 months in (remember, each customer will likely hit that milestone on their own cadence), and you know that a training program would not only help their current active users get more value from your product but could increase the number of users in their company, so you offer that up for a fee, but maybe only to break even.
And that training program would get them to that point in 3 months, meaning they’re ready to move up to the next pricing tier 9 months earlier than they would organically.
HOLD UP! In SaaS businesses with professional investors and a board of directors, a large percentage of non-recurring revenue is often frowned upon since it’s not predictable and valued lower by said investors or potential acquirers.
So generally in these types of companies you want the “attachment rate” of non-RR to RR to be low (whatever that means to your investors, board, etc.). If that’s you, don’t immediately dismiss what I’m saying here… in fact, keep reading.
BTW, in bootstrapped or other businesses, revenue is revenue so don’t worry about attachment rates (until you go to sell, I suppose).
So let’s say you have a training program that you can offer a customer to short-circuit their success, but you have to charge $2.5k just to break even on it. If the customer is paying $10k, that’s a 25% attachment rate, which is probably higher than most investors/boards want to see.
BUT… after the training, the most logical next step for the customer is to buy additional seats, add-ons, etc. and they move to $25k/ARR, now that attachment rate is only 10%… now you’re cookin’ with evil gas.
The moral of this story is… know where your customers are on their journey toward their Desired Outcome, proactively offer them things to help them grow, and when they take that AND grow, offer them the thing they’ve grown into.
Oh, and since they expanded 9 months earlier than they would have organically, where might they be in the next 9 months? You might be able to 5x+ an account value in that first 18 months. Hmm….
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Lincoln Murphy is a world-renowned Growth Architect, Consultant, Author, and Keynote Speaker. As founder of Sixteen Ventures — and previously leader of Customer Success Evangelism at Gainsight — he’s used Customer Success to drive growth across the entire customer lifecycle for more than 400 SaaS and enterprise software companies over the last decade.
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