How much does revenue cost?

Marketers: Do you know how much your revenue costs? It’s no surprise that dollars from existing customers come cheaper. But by knowing just how much cheaper, you can better invest in acquiring more post-sale revenue at optimal margins.

These benchmarks from The Successful Customer offer a rough reference as to how much the typical SaaS firm’s dollars cost: Of course, new business acquisition is the most expensive at a median of $1.28 spent for every $1 earned: Sales, Marketing, and other departments tend to incur comparatively substantial costs as they win just a small fraction of the prospects they work. By contrast, retained dollars come at a median of just $0.13:1. Upsell and cross-sell revenue costs are in-between.

Marketers—and GTM teams broadly—should invest in post-sale programs only to the extent that they derive stronger customer retention and/or marginal revenue from expanding customers.

In other words, there’s a “sweet spot” amount you should invest in post-sale programs–just enough your maximize return. The “spot” is somewhere between (1) underspending and getting no results and (2) overspending beyond the point at which the incremental revenue you gain covers the costs you incur.

Furthermore, you’ll observe differences between post-sale programs–some will achieve better marginal economics than others. For instance, a customer-only webinar series might earn better ROI than would a round of golf with Michael Jordan (a real example that came up in my research, if you can believe it). By comparing customer marketing programs across key measures of efficiency (ex., customer expansion cost ratio), you can make sound tradeoff decisions within your post-sale portfolio.

The math is simple, whether you apply explicit attribution or period costs:

Explicit Attribution Method:
Customer Expansion Cost (CEC) Ratio = CEC of X Program / ARR from X Program

Period Method:
CEC Ratio = CEC in X Period / Expansion ARR in X Period

More advanced teams might evaluate Expansion Acquisition Costs (Expansion CAC) and associated payback period. Expert teams will evaluate these measures on a customer-by-customer basis, excluding expensive customers in the distribution from post-sale programs.

Ultimately, as marketers strive for better efficiency, they’re looking to existing customers as a source of growth. By measuring how post-sale investments impact key revenue cost ratios, you can optimize the marginal economics of your overall program spend.

Jared Brickman

Jared Brickman is Senior Director of the Marketing Center of Excellence at leading software investor Insight Partners, where he advises CMOs of the firm’s 500+ portfolio companies on how to go-to-market. Learn More →

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