Ultimate Guide: Expansion
The most important metric in PLG
Once you acquire a customer and get them to pay, the next step is to get them to pay more.
Yet, somehow, most companies get inanely focused on the 4-step Funnel of Doom:
Watch them churn
It’s a leaky bucket. And if done wrong, where CPA > LTV, it can be a death spiral.
That’s what companies like SmileDirectClub find out (IPO’d at $9B). While the rest of the stock market is rallying to new all-time highs, these companies miss out on the broader growth.
Expansion may be the Most Important Metric In Growth
That’s where expansion comes in. It might be the most important metric in growth. Because it drives leverage:
In the consumer world, expansion is often understood in the context of consumer LTV. For a company like SmileDirectClub, if it could have gone from a single client to their friends and family, it may have avoided its fate.
Regardless of the domain, expansion is critical:
Expansion is the Engine of Product-Led Growth
Expansion is what makes the product-led growth model so powerful.
You can acquire free users at a company, convert some into paid, and then slowly expand into the company. It’s why PLG outperforms sales-led in rule of 40 and EV/NTM Revenue.
Expansion is also the basis of Product-Led Sales.
Product-led Sales is the practice of selling to people who are already using your product. The entire field is based on the concept of expansion.
But product-led sales is set up to fail if you don’t also have a tight coupling with the messaging and levers in the product’s self-serve flows.
Net Dollar Retention
The key metric that all this product-led sales plays into is net dollar retention.
And the impact of moving NDR is mathematically provable.
Let’s say you have two companies, each at $400M revenue and acquiring $40M revenue a year. Both are also growing the acquisition at 10% per year. But one expands its existing 10% a year, while the other keeps it flat.
The one expanding wins over 10 years, by nearly double:
This isn’t even best-in-class NDR, which is >120%. So - everyone wants higher NDR.
Expansion is Not…
In product growth, expansion is not:
New product expansion
Product-market fit expansion
We’re focused on existing product expansion.
Expanding the revenue of your existing product is one of the most powerful levers in most businesses. It’s just hard.
That’s where this post comes in.
The Overall Strategy
Org-Wide Expansion Strategies
The Top Mistakes Companies Make
At 6K words, I believe it’s the web’s deepest guide to kick-start your expansion motion, grow your LTV, and improve your NDR. After years in the trenches across B2B and B2C, this is what I’ve learned…