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SaaS Pricing Strategies-the Fallacy and Fix for Land and Expand

The sales strategy of “Land and Expand” is common among software companies.  So common, in fact, that it might be fair to call it accepted wisdom. In theory, Land and Expand sounds smart. Sell your software into an organization at an initial level and grow revenue by selling additional users, upgrades or other products over time.  First land the customer, then expand them.

But too often in practice, Land and Expand is an empty promise with hidden costs, as the desired expansion fails to materialize and “foot-in-the-door” price concessions become anchors on the books.

Instead, consider flipping the equation to “Expand and Land”.

Expand and Land

“Expand and Land” Makes it Easier for the Customer to Increase Their Business with You.

At the core of this strategy is a pricing model that clearly defines the discounts available as customer penetration increases, such as lower per-user fees for higher numbers of users.  Throughout the sales cycle, the salesperson–in full transparency–exposes the pricing model to the customer, which pre-establishes the value of expanding their relationship.  In so doing, the customer is encouraged to calculate their initial and future utilization path, thereby becoming invested in their own expansion.

To illustrate, consider a simple Land and Expand negotiation using a $100 monthly per-user base price.  As the customer evaluates a 100-user contract for $7,500 per month (assuming a 25% discretionary discount for volume), they are hesitant to take the full risk.  The salesperson wants to “land” the customer and sells a 10-user pilot with the 25% discount–an act of good faith for the future expansion–for a total contract value of $750 per month.    

When the time comes to “expand” the customer, the negotiations start all over again, with the customer viewing the initial 25% discount as the starting point.  They may hold out the promise of an additional 50 users to come later at another company location, giving the salesperson even more incentive to land the next tranche.  Or, since per-user pricing rarely scales effectively with value, the customer could generate enough value from its 10 users to postpone the expansion to a later, undefined date that may never come. 

In this scenario, even if the expansion happens, it likely results in a lower price, and consumes a significant amount of time in back and forth proposals and negotiations.

The Advantages of Expand And Land

Conversely, in an Expand and Land scenario, the salesperson exposes the pricing model upfront, showing the customer’s investment at every increment.  The customer knows that at 10 users their investment is $100 per user, but scales down as they commit to buying more.  They know precisely the value they will receive by expanding the relationship over time and they learn that discounts are earned, not given.

This accomplishes several things for the software company:

  • First and foremost, it orients upfront discussions around the future expansion path, which increases the likelihood of the expansion actually happening.
  • It supports the important principle of pricing fairness by making discounts transparent and universally available.
  • It maintains the integrity of the company’s pricing model, protecting it from discretionary bias and negotiating vulnerability.
  • It significantly reduces the time spent quoting and negotiating.

Part of an Integrated Monetization Model

To be successful, Expand and Land requires a well-conceived monetization model that is built on those elements of your product which truly add value and supported by a commitment to adhere to the model.  We’ve found that a strong data platform that continually monitors, incorporates and scales customer, transaction and competitive data can solidify the model and give your executive and sales team more confidence in your overall strategy.

For software companies striving for revenue and valuation increases, Expand and Land can be more than a new twist on an old idea.  It can empower a sales strategy that actually works.

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About The Author

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Chris Mele

Chris is a software monetization and pricing expert and former CEO of an award-winning SaaS company. An avid scuba diver, Chris should probably move closer to the beach.
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