All startups want to maximize their revenue from each customer they secure. But for B2B startups that target enterprises, achieving that swing-for-the-fence maximum with the initial deal is practically impossible. Even attempting to achieve it would take much more time and with higher chances of no deal at all.
This is where the land-and-expand sales strategy can prove hugely valuable. It delivers faster and easier sales cycles for the initial deal and huge growth potential, over time. Let’s explore the strategy in more detail.
The Land-and-Expand Concept
The general theme of the strategy involves landing a new big customer, but with a smaller deal size as compared to the full potential that exists. Smaller deals usually mean a faster sales cycle and a lighter sales touch approach by the startup. It also means the sales process is easier to navigate and get to a decision. That translates to a smaller decision-making committee and final approvals by a lower-level manager or executive (ie – Director versus Sr. VP) versus a much larger initial deal.
Side Note: If you aren’t already experienced with selling to enterprise organizations, I highly recommend you read my article titled “Intro to Enterprise Sales”.
You might already have a track record of landing new customers with a free trial or freemium offering and then converting some of them to a paying customer. As effective as that strategy can be, it doesn’t really meet the standards of the land-and-expand strategy. Converting a customer from free to paid usually just means “expanding” the amount of money you get paid, from nothing to something greater than nothing. You’ll soon learn that land-and-expand is different, even though these are all viable customer acquisition strategies.
The concept of this strategy doesn’t just involve landing with a smaller, simpler deal than your full potential. It involves a strategy of landing with the best option for easy and predictable closure while leaving open the best odds for future expansion.
Two expansion terms you need to understand are listed below:
- Upselling – Selling more usage of a product the customer is already using
- Cross-Selling – Selling new products to a customer that is already using another of your products
Cross-selling is obviously only possible once you have more than one product to sell.
Below are the most common land-and-expand strategies I have executed and observed:
- Land with a deal involving Product A and later expand with the sale of Product B (cross-sell)
- Land with a deal in Geography A and later expand with sales to other geographies (upsell or cross-sell)
- Land with a deal with Function or Division A and later expand with sales to other functions/divisions (upsell or cross-sell)
The “Land” Part of the Strategy is Really Important
You might think this sales strategy involves landing ANY sort of initial deal, in order to enable a future expansion. In truth, I’ve found that out of the multiple land strategies (product, geography, function/division), there is usually one approach that is most friction-free. Your best initially-landed deals will result from your most clear and compelling value proposition option, and one that is easy to evaluate, implement and support. Ideally, that approach also best enables the desired future expansion.
If it’s not already obvious what your land strategy should be, spend time thinking through the scenarios and deriving some theories that you can later validate. It’s like a product-market fit exercise. For example, is it better to land in the marketing org and then expand to sales? Or is it better to land in one geographical office location and expand to other locations?
Side Note: If you decide to geographically expand to international markets, I highly recommend you read my article titled “The Complexities of International Expansion“.
While you only have a single product and only have sales and support resources in a single country, your land and expand options are fewer. But that will likely change over time and, as that happens, you should reevaluate your strategy.
After you land the initial deal, your job has only just begun. It is critical to impress each new customer. This usually means things like smooth implementation, effective training, and high-quality, responsive support.
If you had an internal champion during your sales process, make sure to understand how THEIR success will be measured from the deployment of your product. This champion can become your most valuable resource for expansion time.
The “Expand” Part of the Strategy is Delightful – When it Works
When executed correctly, the expansion phase is much less complicated and contentious than the initial land phase. That is because you already have a contractual relationship with the customer and they’re really happy with your product. You’re already on the “inside”.
Upselling and cross-selling within the same function or division is usually by far the easiest to achieve. That’s because the decision maker is either the same or it’s their direct boss. Expanding into new functions, divisions or geographies is easier than starting from scratch. But to shorten the sales cycle and improve your odds of success, you’ll need relevant internal success stories and help from your prior champion, influencers and decision maker.
While seeking the expansion, it’s possible that pricing and legal terms for the business relationship will be renegotiated, so as to take into account the much larger deployment of your solution. This might involve negotiating a Master Services Agreement (MSA), which is a fancy name for a more comprehensive framework agreement that covers both current and future usage and activities. An MSA is highly-coveted, but not something you want to have to negotiate for the initial deal. They’re very involved and will cost you a lot in attorney fees to get right. So save that for the expansion phase.
Since you already know that a successful land-and-expand sales strategy will involve increased use of your product over time, you might attempt to have a volume-based pricing schedule be a part of your initially landed deal. This extra price negotiation has the downside of adding a little complexity, but has the benefit of pre-negotiated prices (no surprises) for when the future upselling occurs.
A huge benefit of expanding into new functions/divisions/geographies or cross-selling within existing functions/divisions/geographies is the resulting “stickiness” that can be achieved with the customer. The more you are able to expand in these ways, the harder it is to rip you out and replace you with a competitor’s solution. This is especially true if your various expansions involve more technical integrations and data exchanges with other systems the customer is using. With this, your competitors will have real difficulty with their own land-and-expand strategy directed at your customers.
Helpful Questions to Guide Your Best Strategy
Hopefully by now you’ll agree that the land-and-expand sales strategy is easy to understand conceptually but not easy to perfect. Below are some questions you and your executive team might consider answering to help serve as a guide.
- Which product is easiest to land the first deal with?
- Which customer function or division is easiest to land the first deal with?
- What type of sales process enables the shortest sales cycle? This involves identification of the ideal buyer/user persona, budget authority levels, product evaluation methods, etc.
- After landing the initial deal, will it be better to next pursue an upsell or cross-sell? With this, is it better to stay within the initial function/division/geography or pursue the next one?
Answers to these questions will require some experience and experimentation. But simply knowing the key questions that will need to be answered will help you keep your eyes and ears open for the needed information.
Selling Through Distribution Channels
If you don’t sell direct to customers but rather use an indirect method of customer acquisition, there’s an additional aspect of cross-selling you should think about. It comes into play, even if you only have a single product. What, how’s that possible since cross-selling requires multiple products?
When you sell through distribution channels, those partners always have other products in their catalog. Do you offer the best “land” product for their own land-and-expand sales strategy? If they have other products that can logically and fairly easily be sold after they land initial deals with your product, make sure to point out those synergies.
If you aren’t the best “land” product for their sales strategy, could your product(s) be good “expand” products to include in their land-and-expand sales strategy?
Since resellers and distributors sell and support multiple vendors’ solutions, they naturally become masters of the land-and-expand sales strategy. Make sure to speak their language, in this regard.
Lifetime Value and CAC Payback
Upsells and cross-sells have a favorable effect on your lifetime value within a given customer, as compared to just the initial deal. And since the initial deal is often a very small reflection of the reasonable potential, the LTV multiplier effect can be quite dramatic.
Things get even better if you are able to achieve an upsell or cross-sell before achieving payback against your initial customer acquisition cost (CAC). Doing so can dramatically shorten your CAC payback period. Remember that it’s only after achieving CAC payback that you start generating actual net lifetime value.
Also remember that for SaaS startups, investors like to see LTV that is at least three times the CAC. They also like to see CAC payback in less than 12 months (I typically push for less than 9 months).
Side Note: If you’re a SaaS startup and these terms aren’t already highly familiar to you, I highly recommend you read my article titled “Visualizing the Interactions Between CAC, Churn and LTV”.
Messaging to Investors
If you sell to enterprise organizations, and especially if you have a multi-product vision, investors will be highly interested in your customer acquisition strategy. The land-and-expand concept will be very familiar to them, so don’t just throw the term out there lightly. Instead, be prepared to explain and defend your strategy, along with any evidence that it’s already working.
As you successfully implement the strategy, make sure to capture information about the initially landed deal (especially deal size and sales cycle) as well as the most common expansion deals (upsell vs cross-sell, best targets, average deal sizes, sales cycles, etc). And if you’re a SaaS startup, also make sure to capture and communicate the effect your strategy has on CAC payback and LTV.
You don’t have to map every possible path towards your typical maximum revenue potential. Rather, showing solid information about the first two or three deals that typically occur within an enterprise will bring you credibility. And if you’ve been doing it long enough to have reached your full potential (or close) with multiple enterprises, you’ll certainly want to share that info too.
Investors typically expect to see a full potential of at least $1M in contract value when selling to a large enterprise, even if the contract spans something like three years. Driving that higher to $3-5M puts you in the big leagues. Until you’ve accomplished your full potential with a few customers, you’ll need to foretell what sort of penetration you’ll need in order to achieve it.
Side Note: Since most enterprise deals start with a proof-of-concept evaluation, check out my article titled “Getting Maximum Credit from Your Enterprise Trials“.
The land-and-expand sales strategy is all about customer acquisition efficiency, per-customer revenue maximization, and long-term customer retention. It is a well-known strategy that has been successfully executed by all big-name tech companies that sell to enterprise organizations.
As you master your own version of land-and-expand, you’ll not only improve your financial and operational results. You’ll also find that investors will reward you with higher levels of interest and higher valuations.