Recurring Revenue within Existing Accounts vs. Acquiring New Customers
What happens when sales organizations focus exclusively on recurring revenue within existing Accounts vs. acquiring new customers?
We have all heard of – and many of us follow – the supposition that selling to existing customers is easier and a more cost-effective way to generate revenue, and thus, a great way to grow business. Based on a recent observation, I would like to offer a contradictory theory to this widely held perspective.
At SPI, we have recently started working with a client that is a venture capitalist. The principals of this firm worked as executives in some of the top software companies in the world, so they focus on their comfort zone – acquiring and turning around failing software companies. Among all of these failing companies that get acquired, I have observed a consistent theme.
Apart from having no repeatable sales process, misalignment of their marketing efforts, and ineffective pipeline management, they had little to no focus on selling to new customers and spent all their time servicing the existing by pushing renewals and upgrades. In fact, the only new logo business would come via unsolicited RFPs (Tenders). And, we all know the low win rates associated with sellers who live their lives as “column fodder.” Of course, based on the “compensation drives behavior” theory, the sellers were compensated on this approach. To drive renewals, sellers would do things like discount high-profit items, namely services, to get the additional licensing revenues. In my humble opinion, their poor performance was preordained by their approach.
I cannot and will not advocate a complete reversal of their approach, but I will make the obvious recommendation that balance is the key to their salvation. Not backing the truck up to their loading dock and dumping products, and then running like hell for the next logo, but a “healthy pipeline” of net new and existing customer opportunities supported by effective and attentive customer service, is the best practice.