Half of all SaaS companies consider upselling and cross-selling a high priority.
Why? Because netting new customers is expensive — it’s far less effort to push at an open door.
Your existing customers have already bought into your value and believe your product solves their problems. It’s easier to convince these customers you could solve a few more of their issues, than to start from square one with a new user.
But that’s not the only reason upselling and cross-selling are vital to SaaS companies.
SaaS companies provide software as a service, rather than as an outright cost. This means you need to make sure you pull in decent revenue over each customer’s lifetime to balance out customer acquisition costs.
Upselling and cross-selling help boost that income.
Read on to discover why upselling and cross-selling are the backbone of SaaS profitability, along with key tactics to improve your upselling and cross-selling sales strategy.
Table of Contents
- What’s the Difference Between Upselling and Cross-Selling?
- Why are Upselling and Cross-Selling so Important for SaaS Firms?
- How to Improve Your Upsell and Cross-Sell Strategy
What’s the Difference Between Upselling and Cross-Selling?
44% of SaaS companies say they get more than 10% of new revenue from upselling and cross-selling. But, what’s the difference between the two?
It’s quite simple.
Upselling refers to the practice of selling a larger package, whereas cross-selling is the act of selling customers additional related products.
Let’s first look at upselling in more detail.
There’s two types of upselling.
With existing customers, you’re trying to get them to upgrade from their original purchase. Alternatively, you can convince a new prospect to buy a slightly more comprehensive package than they already planned to buy.
Here’s Marketmuse’s pricing, for example:
For $79 per month, one user can access the basic text optimization tool and perform 25 queries a month.
To try and upsell the product, the content optimization software offers more functionality for their more expensive packages. If that user wants to utilize the three other applications, they’ll need to purchase the ‘Plus’ package instead.
Notice how MarketMuse only offers a free trial of the ‘Pro’ package. Since around 10% of customers convert after a free trial, this is a strong upselling technique to convince users to purchase the larger package.
Now, let’s look at cross-selling.
You can also cross-sell to both existing and new customers to increase the average order value.
Cross-selling to a new prospect usually involves offering discounts for an additional product at checkout.
Cross-selling to existing customers is a little more challenging and usually requires sales calls and marketing campaigns.
Look at how Freshdesk cross-sells to new customers at the checkout stage.
Offering three different complementary products at checkout, Freshdesk uses powerful, persuasive language to convince users to ‘supercharge’ their experience.
This implies that users who don’t buy these extra product recommendations aren’t accessing the full power of Freshdesk.
Why are Upselling and Cross-Selling so Important for SaaS Firms?
Since SaaS companies offer software as a service, they rely on three major metrics to stay profitable:
- Customer acquisition cost
- Customer lifetime value
- Customer churn.
Customer acquisition cost (CAC) refers to the sum of money it costs to acquire a new customer. This is calculated by working out how much all sales and marketing campaigns cost and dividing this by the number of new customers over a given period.
Customer lifetime value (LTV) refers to how much money you’ll get from that customer while they remain with you.
The customer churn rate is related to customer retention. It’s the rate of customers canceling their subscriptions.
When you put these figures together, you can see that profitability depends on how SaaS companies manage these metrics.
To grow as a company, a SaaS firm has to be able to afford the cost of new customers (CAC).
To make sure this capital exists, SaaS companies need to increase the amount of money they make per existing customer (LTV) and reduce the number of customers leaving their service (churn).
This is where upselling and cross-selling come in.
On the one hand, upselling and cross-selling increases the LTV. Each customer who upgrades their package or adds on another product is now paying more each month.
On the other hand, upselling and cross-selling boost the service value that a customer receives, which increases retention. Customers who feel they’re getting a great service are far less likely to cancel.
What’s more, these two tactics are far better at producing revenue since you’re selling to customers who are already convinced by your product. Instead of having to explain your SaaS company’s value from scratch, existing customers already use your product and know the value.
Just consider the statistics of high-growth SaaS companies.
When trying to convert new users to a free trial or account, high-growth SaaS companies have a conversion rate of between 3% and 10%.
But, when converting free users to premium users, the conversion rate jumps to between 8% and 20%.
As you can see, it’s easier to preach to the converted.
How to Improve Your Upsell and Cross-Sell Sales Strategy
It’s not enough to ask your customers if they want an add-on or additional service.
You need to demonstrate the true value they’ll get from upgrading or adding on products.
Here are some top upselling and cross-selling techniques that increase the value of each customer’s shopping cart.
1. Try Application Discovery
Application discovery is a primarily hands-off approach to upselling and cross-selling.
The idea is to keep a low profile until the customer decides it’s time to make the call.
Salesforce, one of the world’s most-successful subscription businesses, has built an empire that’s worth over $55 billion using this technique.
Salesforce doesn’t bombard its customer base with frequent phone calls or offer freemium subscriptions.
Instead, Salesforce’s data limitation warnings let customers come to the realization that they need more service than they’re currently paying for. This causes them to upgrade.
As Joel York, CMO of Accellion, puts it, “if you’ve ever been a Salesforce customer, you know 90% of the upgrade process…[is] repeatedly bumping into the limits of your current subscription.”
2. Track User Segmentation
Behavioral data is key to maintaining a profitable subscription business. Insights on how your current customers are using your product are critical to forming segments that are most-likely to purchase an upgrade or additional product.
Standardize rules within your organization on which features are likely to present challenges to subscribers using a lower level of service or a standalone product.
Base your interactions with highly-engaged segments around the value that an upgrade or add-on product would offer.
Intercom provides an awesome tool to segment your customers. They call the app “Manage your customers from cradle to grave.“
3. Deliver Value Before a Paywall
As noted above, the leading high-growth SaaS companies convert users from free accounts to paid accounts at conversion rates of 20%.
This is because a free trial or a freemium account helps customers to experience your software in action to see how it solves their problems.
But, it’s vital to remember that your free trial or freemium account will be their first impression of your software. You must make sure it’s high quality.
Show customers what you can do by delivering real value, but make it clear that this is just the tip of the iceberg — they’ll experience the real benefits with a paid-for package or additional related products.
Take graphic design software, Canva, for example.
The freemium product offers an extensive package of design features and free graphic elements. Users can immediately see the high quality of products Canva offers.
To show users the benefits of upgrading to the premium package, Canva allows users to pay for add-on products and features with one-time payments.
Users considering the premium package can trial the benefits with one-off purchases, making this a great upselling technique.
At the same time, those only buying the odd product now-and-again provide extra add-on income for Canva.
4. Design for Discovery
Subscription businesses need to design a product that grows with users.
Make sure barriers to entry are low, and that your product is simple enough to hook new users during the trial period. Design a product that has more than initially meets the eye, so customers are continually discovering new functions.
This can improve your engagement rates over time and create customers who are willing to listen to the benefits of potential upgrades or extra complimentary products.
Look at task management platform, Pipefy, for example.
The free product offers a good deal of basic functionality, but there’s a lot more to be gained from upgrading to the Business package.
As businesses grow, Pipefy offers even more functionality with the Enterprise package. This encourages existing Business package users to upgrade again as their business expands.
5. Provide Self-Service but Keep Offering Upgrades
Your customers should never be in a situation where they realize they need more product than their current level of service offers, but aren’t able to conveniently get into contact with someone at your company.
Promote self-service upgrades, so that your clients have the option to upsell themselves at any point.
On top of this, actively identify and target customers with a “value gap” — those who have a genuine need for a higher level of service.
Simply offering the option to upgrade within the interface won’t guarantee that customers who need more product will make the leap on their own.
Look how team messaging software, Slack, does this.
Slack’s free package limits how far back users can go into their message history. Users with the need to review old records will need to upgrade to a premium package.
This message targets relevant users with its placement without being pushy. Users only see this message if they try to scroll back to historical messages. Users that never try to scroll back will never see this prompt.
6. Leverage Customer Feedback
Listening is the most essential action your company can take to minimize churn and identify critical upselling opportunities.
Listen to what your customers say on social media and review websites, pay attention when they reach out, and encourage interaction with surveys.
Your customers are your best analysts. By applying their feedback efficiently, you can improve the loyalty of your relationships, and offer a better product.
Not only that, direct engagement with customers can help you understand the needs of each target persona.
See how team collaboration software, Asana, uses email surveys to reach out.
By offering a $100 Amazon gift card, Asana persuades customers to offer feedback so they can improve their product and discover audience needs. They can better target upselling and cross-selling campaigns based on this data.
If your upselling and cross-selling strategy aren’t up to par, you’ll struggle to remain profitable as your SaaS firm grows.
Encourage customers to buy bigger packages and add-on products by showing the tangible value you provide. Try using a freemium package and leveraging customer feedback to drive this.
To make it easy for your customers to upgrade their subscriptions and add on products, you’ll need a frictionless subscription management service.
Schedule a Chargebee demo today to see how we make upselling and cross-selling simple.