Calculating Upsell [Legacy]

Tracking midterm upsell is a powerful feature of Renewal Management in ClientSuccess. Since how upsells are negotiated and sold are often unique to your company's products and processes, it is important to understand how upsell managed and calculated in ClientSuccess, to ensure your metrics are accurate.

While midterm upsell is expansion of the account, in ClientSuccess, it is literally expansion of the individual subscription. This means that midterm upsell is recorded as an addendum to the subscription, opposed to an early renewal or the addition of a second subscription of the same product.

The following example is provided to help understand how midterm upsell is calculated in ClientSuccess.

Note: ClientSuccess rounds upsell to the nearest month.

Midterm upsell example

Imagine you have a $15,000, 5-seat subscription that begins on the first of January and lasts for twelve months:

This results in the following metrics:

ARR:  $15,000
MRR:   $1,250
TSV:  $15,000

Halfway through the subscription, an additional 5 seats are sold for a total of $5,000:

Your subscription metrics now result in:

ARR:  $25,000
MRR:   $2,083
TSV:  $20,000

Why doesn't ARR match TSV?

Remember that ARR (Annualized Recurring Revenue) isn't necessarily actual dollars collected - it's the value of the subscription, annualized over twelve months. If your subscription (or upsell) is less than or longer than an exact 12 months, then ARR will be different from TSV (Total Subscription Value). TSV is a straight sum of the amount. Originally, ARR and TSV matched because the term happened to be 12 months. Once the upsell was added, ARR changed because the upsell occurred midterm and was annualized. This is why ARR and TSV no longer match - the annualized metric is not the same as the straight sum of the amount.

In the example above, the upsell for an additional 6 months is $5,000. Annualized, that is $10,000. Thus, the ARR for this subscription increases from $15,000 to $25,000. 

How do I reflect the per seat price in an upsell?

The original subscription above included 5 seats (quantity) for $15,000. That's $3,000 per seat per year. Due to how that first upsell was entered, however, the 5 additional seats were only worth $1,000 per seat for 6 months. 

If you want to capture an upsell where the additional seats were sold for the same per-unit price, then the total amount for the upsell would be $7,500 ($3,000 / 12 months = $250 per month = $250 x 6 months = $1,500 x 5 seats = $7,500):

Resulting in the following subscription metrics:

ARR:  $30,000
MRR:   $2,500
TSV:  $22,500

If 10 total seats were purchased for $3,000 each, shouldn't TSV be $30,000?

No, because half of the seats weren't purchased until halfway through the year. Remember that these seats are $3,000 per year. The additional 5 are worth $3,000, but only half of the year has been purchased ($1,500). Thus, the total subscription value is $22,500 ($15,000 + $7,500). Annualized, the revenue is the full $30,000 (10 seats x $3,000).

In summary, the key to accurately recording upsell is to consider how the upsell was sold and to note the term by checking the upsell date. If you only have the final amount, you may need to work backwards and pro-rate against the remainder of the term for the amount.