The Complete Guide To Moving Up-Market in SaaS | Proposify
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The Complete Guide To Moving Up-Market in SaaS

Moving up-market is complex and challenging, but it can transform your SaaS business into a scaling empire. On this episode of LTV, Kyle talks about why you should consider a move up-market to sell to larger companies, and what challenges lie ahead.

14 min. read

Part of what makes SaaS so attractive is the ability to rapidly build a product that generates recurring revenue. It’s entirely possible to bootstrap your way to thousands of monthly paying customers and millions in revenue, all of whom require minimal sales and support. It’s as close as you can get to passive income.

But inevitably, most SaaS companies hit the same wall sooner or later: Growth stalls, usually around $5M in ARR. There are a few reasons for this:

First is churn. Small customers, say freelancers who pay $19/month for your tool, churn at a very high rate. And churn eats away at recurring revenue growth. You face the leaky bucket problem, where you need to bring in thousands of new customers every year to replace the thousands who have cancelled their subscription.

Secondly, customer acquisition cost (CAC) is going up across the board. Paid advertising is becoming more expensive, more people are ignoring email, and with inbound marketing it’s getting harder to break through the noise. If you need to spend more to acquire a customer than they ever pay you back in revenue, you don’t have a business.

What is there to do?

Enter: the move up-market. 

It’s a common way SaaS companies tackle the problem of stalling revenue growth and high customer churn. Here’s why it can be very effective:

Larger companies who pay more for your product churn at a much lower rate than small companies at low price points. They also bring in substantially more revenue over their lifetime as a customer.

Bunnies, deer, and elephants

Chrisoph Janz, investor at Nine Point Capital, wrote about it in his seminal blog post from 2014, called Five Ways to Build a $100M Business. In it, he likened selling to customers like hunting different sized animals.

Apologies in advance to animal lovers.

Bunnies are customers that pay you only about $1,000/year. Bunnies are easy to catch and there are many of them, but they don’t have a lot of meat on their bones.

Elephants pay you six figures or more per year, but they’re tough to find and require large teams to bring down. If you can do it, they’ll feed you for a long time.

Deer, on the other hand, are customers who pay you low five figures per year ($10-20k/year). There’s a lot of them, and they require a little more work than bunnies, but it’s worth it. 

For example, if your average customer pays you $19/month and they churn at 5% each month, you’ll lose 60% of your customers in a year, and their lifetime value will be only about $342. That means that you would have to spend a fraction of that per customer on acquisition, which is very difficult to pull off.

On the other hand, if your average customer pays you $250/month and churns at only 2%/month they’ll bring in over $10,000 in their lifetime. Suddenly you can afford to spend more on sales and marketing to get them and you don’t need to replace as many each year — your recurring revenue will compound.

Taking it further, if you sell your product for $2,000/month with a churn rate of 1% or less, those customers will bring in $170,000 in their lifetime. That’s without accounting for expansion revenue, where your customers gradually pay you more over time. Growing your MRR is much easier with a higher priced product.

Balancing the pros and cons of moving up-market

A move up-market typically comes with less competition, purely because most SaaS companies tend to start out targeting small customers. Larger businesses looking for a solution have less to choose from, because there are fewer companies building products that suit their needs.

So this all sounds great, but like anything in life, if it was easy, everyone would do it. The reality is that moving up-market is not without its pitfalls and challenges. I know from experience, because Proposify has been gradually moving up-market for the past two years, and I have the battle scars to prove it. 

The number one challenge is that your business has to evolve from its origins and its original customer base to serve a larger customer base with different product requirements, different expectations on sales motions with more hands touching deals, and tiering of customer support. There’s also a cultural shift that many companies undergo during this time from being a business that is product led to a business that is more sales driven.

This evolution can take years to get right, so be sure this is something you want to do, as it will slow you down in the meantime.

From a departmental level, here are the key challenges you’ll need to address and how you can get started implementing changes.

Let’s talk about product

Up until now, your product took off because it satisfied a need for small business customers with only a handful of seats—or just one. Maybe it let your customers send invoices, manage products, or store their contracts. 

They like it because it’s simple, easy to use, and does just what they need. 

They signed up for a trial, used it, and realized its value without ever talking to a sales rep. 

Once in a blue moon, they run into a glitch and reach out to customer support who emails them with a fix the next day, and they’re happy with that. They happily promote your product to others, especially if there’s an incentive, like a free month of usage in exchange for a review or social share.

This is all well and good, but if you hope to sell this to a larger company, at a higher price point, you’ll begin to notice some holes in your product that need to be filled. 

Generally speaking, these are the features you’ll usually need to build on or improve:

Permissions

You don’t usually need to think about this when there’s only a couple of people in an account, but larger companies need to control what users in an enterprise account are able to see and do. They need to lock down access at a granular level.

Security

Large companies are much more concerned about advanced security than small companies. They often want two-factor authentication. They have IT departments who want to have phone calls to ask about your hosting infrastructure and security practices, GDPR, and data storage practices before they’re ready to sign off or purchase. If your CTO hasn’t given security much thought up until now, or doesn’t have it documented, you’re going to lose these deals.

Workflows and Workspaces

Generally speaking, large customers want to make their organizations more efficient, which is more complex at scale. How does your SaaS product look when there are hundreds of users on one account, maybe spread across multiple teams or territories, creating thousands of documents, projects, or other pieces of content? Are there triggers in place that your customers can configure so they can automate things like approvals?

Integrations 

Large customers use other SaaS solutions for their complex needs. Some are well known enterprise tools, like Salesforce, Microsoft Sharepoint, Box.com, or Marketo, while others may be more obscure platforms, or even custom built in-house tech. Guess what? Your product has to integrate seamlessly with them, and not just at a surface level.

Admin tools and reporting 

With your larger customers, there are always different types of users within an organization using it. The people who administer the account—the ones who invite or delete users, manage permissions, or configure settings—may never use the core features themselves. They’ll want different features than your “regular” users who log in every day. They’ll want visibility into what’s happening in their account.

You’ll also notice that features your small customers love are completely irrelevant to bigger customers. For example, at Proposify, our payments feature that enables you to get paid through Stripe when a customer signs your proposal is loved by our smaller customers. But larger customers who have more complex processes around billing, often involving other departments, have no need for that feature.

As you can see, there’s a lot of tech that needs to be built for your SaaS to appeal to an up-market audience. If you can build what they need, they’ll be more willing to sign that multi-year, five-figure contract.

Just like building for smaller customers, all of this requires intense focus on the customer; knowing who they are, and what they need. Your product teams will need to sit in on sales calls, talk to customer success, and deeply understand the requirements of mid-market or enterprise customers.

There’s less room for mistakes when you’re building for these customers. Unlike with SMBs, you can’t put out raw, buggy, or unfinished features to your whole customer base and wait for the feedback to roll in. These large customers have more at stake and less patience for errors. “Move fast and break things” just doesn’t work. You have to test out new ideas and beta features with small groups of customers first before shipping to your largest customers.

Marketing and positioning

Positioning is a deep topic that I could spend a lot of time talking about, but I’ll keep it simple. The way you’re positioning your product to bunnies will have to change substantially when selling to deer or elephants.

The basic reason for that is the buyers at these organizations have different needs, care about different things, and buy software differently.

$10K/year for a software product isn’t going to break the bank for large and enterprise companies, but they won’t give it a passing thought (or invest their time with the procurement process) unless it’s a big problem their organization is experiencing. 

It’s impossible to get their attention selling a simple tool that solves a small inconvenience. It has to speak to a deep problem that their company really cares to solve. If you’re a solution to a problem costing them millions, you can easily charge six-figures for it.

If they visit your website and it looks like it’s made for tiny customers, they’ll move on. Great marketing isn’t just when you understand your customer, it’s when your customer feels understood by you. When they visit your website they have to feel like “this company gets me.”

Positioning involves knowing who your perfect customer is, who the various buyer personas are and what they care most deeply about, what problem your product solves, how customers are currently solving it and why your product is better than the alternatives. Then you have to articulate why you’re different in a way that resonates with them.

Positioning is never set it and forget it. You should review your positioning at least once per quarter to see if any new data came to light that informs how you’re positioning yourself.

Pricing

Much like with positioning, pricing is a deep topic but often doesn’t get enough time and attention. Companies tend to set and forget their pricing, and if they do experiment with it, it’s often throwing a new plan at the wall and waiting to see if it sticks.

I’m going to do a whole other video about our pricing changes at Proposify, but here are a couple of tips to keep in mind as you move up-market.

Don’t cap your own pricing. A big problem we had as we moved up-market was that our largest tier of pricing was capped at $3,000/year which we thought was a lot of money at the time (oh, to be young again). 

We also offered unlimited users on the large plan, thinking that the value for money was too good to pass up for customers.

Your pricing should be designed to grow with your customers—meaning, as your customer grows, so does the amount they pay you. A customer with 1,000 seats can’t possibly pay you the same amount an account with 20 seats does.

With changes to our pricing structure, we’ve now been able to close $10K, $20K and even $60K deals.

Sales 

Let’s talk about sales. This will be the biggest shift in culture you’ll need to make as you move up-market to sell to deer and elephants.

Up until now, customers would find you through a Google search or clicking an ad, view your website, then sign up for a free trial, and then if they got value from their trial, begin paying you.

It doesn’t work like that in the mid-market and enterprise. 

Leads expect to be able to talk to a salesperson. They want demos, proof-of-concept, custom service level agreements, and maybe even professional services. This all requires people and time.

You’re going to need to build out a sales team and sales processes, which is incredibly difficult to do, especially if you’ve never done it before.

Here are a few lessons I’ve learned in the last couple of years:

Start selling yourself

Founders are usually the best at selling their product in the beginning. They know their customers and product best, and people tend to listen to people with “Founder and CEO” in their title more readily than “sales account executive”. Laying the groundwork will help the salespeople you hire fill your shoes.

Start with a couple of salespeople

When starting out, you want to hire a couple of scrappy salespeople to help you figure out the process. The advantage with hiring two salespeople is if one is getting results and the other isn’t, you can dig in and figure out what the successful rep is doing differently. If both are failing, there’s probably something deeper at work; i.e. you don’t have product/market fit.

As your reps find success, you can slowly hire more and will probably need to break out sales roles into specialties: business development reps who prospect and qualify leads, and account executives who demo and close.

Multi-threaded deals

With larger deals, you are never selling to one person. It takes a village to buy software, apparently.

At Proposify, we’ve identified the following buyer personas during the sales journey, and these examples are fairly standard across any organization:

  • Your champion is the person who was looking for a solution, found you, and wants to buy your product. Getting them sold isn’t the hard part, getting them to sell it internally is.
  • The decision maker is the person who holds the budget and has ultimate sign-off authority. This may be a C-Level or VP, and they often won’t sit in on demos, they want their report (your champion) to sell them on it.
  • Influencers are the people who can help or hurt your deal, but will never use your software. They may include legal, privacy, or even the dreaded IT guy.
  • Implementers are the people responsible for getting your product rolled out within the company. They’ll work closely with your customer success team (more on that soon), but will still be involved near the end of the sales process.
  • Users—underneath all of that, we’ve finally gotten to the people who actually use your product.

Your salespeople need to understand how to navigate multi-threaded deals and create a sense of urgency so prospects buy and sales cycles don’t take too long. 

If all of this seemed like a complex sales process, it’s because it is. I’ve written in detail on generating leads and navigating enterprise deals, check it out for a more detailed account on how to land large accounts.

Proof-of-concepts are a necessary evil. I hated this at first, and still do, but many customers won’t roll out your product to their entire organization until they’ve had a chance to try it on a small test group. Another name for these proof-of-concept rollouts are land and expand deals. 

These are smaller deals for a limited number of seats, for say, a 3-month period. If the POC goes well, then they’ll sign the annual contract for the full amount of seats.

Once you have a brand established, selling an entire organization on paying upfront for the full amount of seats isn’t hard. But if you’re like most of us and don’t have the trust of a company like Salesforce, you have to accept that you’ll need to sell pilots to win over most large buyers.

Manual payments. Customers at the $10K and up price point often won’t (or can’t) put that on a credit card, which means you’ll need to invoice them, accept a manual payment, like a cheque or bank transfer, and collect on it. This adds another layer of process.

Multi-year deals are a thing. Because procurement is time consuming, many larger customers are fine with being locked into a two or even three year contract, especially if they get a locked-in price. This can help mitigate churn even more, although it’s not quite revenue on the books, so I tend not to care about multi-year deals if it means heavily discounting to get it.

Customer success is as important as sales. CS are the ones who will onboard, renew, retain, and expand accounts. This is a mission critical function of any business serving the mid-market and enterprise. I’ve made two videos about customer success already—one on how and when to build a customer success team and another on how our CS team achieved negative churn for four consecutive months. If you’re curious to know more, go and watch them.

Moving up-market: key takeaways

Moving up-market has a massive upside, and can transform your SaaS business into a scaling empire. But fewer startups do it for a reason; it’s difficult, adds more complexity, and requires more people and processes to do it right. 

Every department in your company must be ready to evolve their process and practice to better address the needs and desires of larger buyers. I hope this guide gives you an idea of what’s involved with a move up-market. Please comment and let me know your thoughts on repositioning your SaaS company to sell to larger customers.

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