What is Cross-selling and Up-selling and Why Does it Matter for SaaS?
by Mark Adams, on 03-Feb-2021 15:31:44
According to Paul Farris, author of Marketing Metrics, businesses have a 60-70% chance of selling their products and services to existing customers, versus a 5-20% chance of selling them to new customers.
This is good news for companies who sell or resell SaaS and whose core business is typically fuelled by a recurring revenue (or a subscription-based) model. These companies have the envious advantage of a committed customer base with regular touch points, not only for renewals, but also for upgrades, or to sell entirely new products and services.
Introducing customers to better or complementary products (otherwise known as upselling and cross-selling) is an excellent way to stoke revenue growth and is an artform that the world’s largest and most business savvy SaaS companies have honed to a tee.
Let’s look at these two sales techniques in more detail.
When a company wants to upsell a product, it presents its customers with a more feature rich (and usually more expensive) alternative to the one they have already selected.
Below is a clever upsell example taken from file hosting service, Dropbox. Instead of keeping upgrade prompts locked into its pricing page, Dropbox introduces its premium features at key points during the user journey. In this instance the customer has three viable options now that their Dropbox is full; they can delete their existing files to free up space, invite friends to use Dropbox, or upgrade their service to a paid subscription.
If the user opts to upgrade, they are offered a choice of two separate payment options. The Professional plan proposes more than double the savings, and also shrewdly makes sure that the list of features offered is twice as long. Most customers, however, go for the middle option – in this case the Plus plan, which is the shortest hop from the free service they’ve had to date.
Upsells work best if they’re offered at a time when the customer needs the additional features – this could be a defined success milestone, such as being a customer for a year, or usage based, as in the Dropbox example. The offer must make sense to the customer and should add noticeable value.
Cross-selling involves selling additional non-core products which provide the customer with a more comprehensive solution.
A SaaS company might, for instance, offer premium support or product training as add-ons to their software product. Integrations with third parties also enable cross-sell. A Customer Resource Management system with basic functionality could be complemented by the offering of a partner’s e-mail marketing software. Today, there are tools that allow visibility of these integrations so that terms and conditions are respected among the partners.
What Does Upselling and Cross-selling Mean for Revenue?
According to market research company, Forrester, up-sell and cross-sell recommendations constitute between 10-30% of e-commerce revenue. Companies such as Amazon, which have invested heavily in these two sales methods, are likely to be bringing in even higher profits through this channel.
Cross-selling and upselling, while sales techniques, are not just designed with company revenues in mind. If done properly, cross-selling and upselling, allow customers to see recommendations of products and services that are, not only tailored to their interests, but which offer a bespoke range of solutions.
Cross-selling in particular seems to pay off in more ways than sales. According to a SAASRadar report by McKinsey & Co and Gainsight, of the later stage companies they evaluated (those with a revenue of US25-US$75M), the companies that had the lowest churn rate were the ones that cross-sold to approximately one-third of their customers. This confirms that, the more products and solutions customers buy from one organisation, the more likely they are to stick around.
Two Important Factors to Consider
Upselling and cross-selling are only likely to work effectively for companies that can define their customers’ user experience.This can be done by mining usage statistics and segmenting users by engagement, such as login frequencies, features used, and resources consumed (e.g. storage, as in the Dropbox example).
If relevant products aren’t suggested or shown at the right time, click-throughs and conversions will be poor, as will the customers’ buying experience.
Two factors to evaluate when promoting upsells and cross-sells to visitors are:
Avoid suggesting products and services for upsell or cross-sell that disproportionately increase the cost of the overall order. The price of the offering should be attractive and manageable.
Don’t display an extensive array of unfamiliar products. This will only confuse the customer. The more familiar your customers are with the add-on items or services, the more likely they are to want them.
Last but not least, it’s never good to over-sell. Targeting customers with new suggestions and recommendations on every page will only damage their view of the company brand. In cross-selling and upselling, success will boil down to knowing your customer and nurturing them with care.
Did you like this article? Why not read: Why Automation Makes Upselling and Cross-selling Smarter?