Among SaaS marketers, it’s common knowledge that upsells are the Holy Grail.
Why is it important to upsell?
Statistics tell the story. Upselling is 20 times more effective than cross-selling.
Marketing Metrics states that upselling an existing customer is 50% more likely to succeed than selling to a new prospect.
The sheer beauty of your existing customers spending more money with you is one of the benefits of a well-executed marketing plan.
Except when it’s not…
In the SaaS world, the path to riches and prosperity is through successful upselling. The problem, as you’re probably aware, is this: Upselling is hard to do correctly.
Why is it hard?
It’s not because customers are against it. Customers are willing to be upsold, to spend more, and to gain more value.
The problem is with us, the marketers. The better we understand SaaS upselling, the better we’ll do it.
So… how do you do it?
First, Analyze Your Customer
The first issue to consider in any upsell is the customer.
- What is the customer’s needs?
- What is the customer’s interest in an upsell?
- What would the upsell help the customer do better?
- Does the customer’s existing usage of the SaaS validate an upsell?
It’s easy to get so excited about the value of upselling that we forget about the customer.
This is a grave mistake. The customer should be at the center of your consideration as you plan your upsell.
Go back to your SaaS customer persona.
Based on this persona, what upsells would catch her attention?
Upselling is marketing, plain and simple. Don’t lose sight of this fact.
Follow your marketing common sense by starting with your target persona in mind and catering directly to their needs and pain points.
What is Upselling?
One of the most fundamental human drives is the need for achievement.
Late Harvard professor David McClelland (1917-1988) was one of the foremost researchers in motivation theory. His theory states that, “People have an intense need to achieve.”
The drive is stronger in some than in others.
All humans, however, have motivating desires that compel them to act, perform, purchase, and to pursue goals and experiences.
McClelland’s work built off Abraham Maslow’s Hierarchy of Needs.
What does this psychological tidbit have to do with SaaS upsells?
Quite a bit, actually.
When SaaS customers sense that they are achieving or progressing in their use of a software service, it motivates them to seek upgrades and improvements, even if those upgrades and improvements cost them money.
For an example of this, consider the app Headspace.
In order to unlock more levels and mindfulness exercises, you have to complete the introductory phase of the program. Once you’ve done so, you’ve achieved the right status. Yes, you have to be a paying subscriber, but you’re motivated by the fact that you’ve achieved something.
You can unlock more levels — higher “achievements” — but only as a paying subscriber.
Let’s take another upselling example, this time from Buffer.
If you hit your limit in Buffer’s Awesome Plan, then you feel like you’ve hit a milestone of achievement. Great! Accomplishment!
At the same time, Buffer solicits you for an upsell. The connection of achievement to an upsell is no accident. It’s a strategic psychological maneuver that motivates your purchase of the next plan.
As you create your upsell strategy, don’t simply throw together a hodgepodge of new features, storage space, or speed. Those things are nice, and your upsell will probably include them.
More important is the motivation for the upsell. Why should the customer buy? What achievement will they feel? What motivating reason is there for an increase in their desire to buy?
Once you hone in on that motivation, the upsell begins to take care of itself.
Upsells Should Bring Value
The selling part of an upsell is easy. You just set up the customer to buy something.
It’s the value part that is hard.
How do you successfully complete an upsell? You deliver value to the customer.
How do you do that?
By communicating your value proposition.
When you create a powerful value proposition for your upsell, then you’ve won half the battle. Your value proposition tells the customer, “This is a really great thing. You need to buy it.”
The customer thinks more about the value than they do about the cost.
Your job is simply to raise the actual value of the product, and (more importantly) the customer’s perception of value.
That’s what’s in it for them (WIIFT).
But what’s in it for you?
Everything. By increasing your upsells (or cross-sells, or usage charges, etc.) you are increasing your revenue. As many SaaS pricing models indicate, 90%+ of revenue comes after your initial sale.
In SaaS upsells, it’s all about the value.
If the customer can see the value of the upsell compared to his or her current subscription or purchase level, then they will understand why they need to buy.
Value is in the eye of the beholder. For you, the SaaS provider, there may be very little real cost associated with the increased value. That’s okay. The important thing is to make the customer understand and appreciate the value.
Be Persistent With Email Marketing
So far, I’ve been dealing with motivation theory and psychological foundations.
But what about tactics?
Tactics are important, but not as important as psychological underpinnings.
I’ll deal with a single tactic in this section: Email marketing.
Think back to your customer acquisition process. What methods did you use? What were your best channels? What did your funnel look like?
Now, think about your upsell funnel. How should it look?
My guess is that email marketing played a big role in your acquisition phase. It should also play a significant role in your upsell process, too.
Here’s how to create an email marketing process that will bring in a torrent of upsells:
- Personalization works. Personalizing your emails using the customer’s name is a helpful way to grab their attention and improve your success rate.
- Go long. It’s okay to write a lengthy email. Motivated customers will read it and be convinced of their need to purchase. On-the-fence customers will read it, and be convinced. As long as you’re creating solid, benefit-oriented content in your email, don’t worry about writing a long one.
- Showcase your customer service. Customers might be wondering, Okay, but what if I have questions? Will I receive support? Does my upgrade entitle me to an advanced help desk service? Remember, it’s software as a service. Maintain a strong commitment to customer service, and provide a method for upsell prospects to get in touch with you if they need to.
- Don’t forget the call to action! The customer needs to know what to do next. How do they upgrade? Where do they click? What do they do? The email’s CTA should be located at or near the very end, and provide explicit instructions as to how they should proceed.
Follow This Three-Step Process
Upselling is often a haphazard endeavor.
The typical model looks like this:
Get the customer in the door. Now, whenever the spirit moves, bombard them with upselling marketing emails. Done.
That process is okay, but it’s not at all strategic.
I recommend the following process.
1. Acquire The Customer Using Conventional Methods (Free Trial, Etc.)
This is standard stuff. Just get the prospect to use your software, start a free trial, or whatever methods you use to start the customer process.
2. As Soon As Possible After The Trial, Engage The Prospect As A Paying Customer (14-30 Days)
I’m not going to participate in the how-long-should-the-free-trial-be discussion right now.
What I want to suggest here is the importance of pricing.
On the one hand, your customer needs to spend something. On the other hand, she should not spend too much. Spending is important in order to motivate usage and funnel entry. Spending just enough (not too much) is important in order to encourage an upsell later on.
I would err on the side of a low entry price point. Why? Because later on, you will recoup your low CAC (customer acquisition cost) in the upsell. Even if your CAC is at a loss, you will eventually become profitable through even the most mediocre upselling.
Many SaaS CLV (customer lifetime value) metrics indicate a higher value later in the life cycle, but only after the customer has moved into the funnel at an extremely low price point.
There’s a bit of customer psychology going on here:
- The customer feels reciprocally inclined to give back in appreciation for a low price point, thus being more likely to give in to an upsell.
- Having already paid a sum, the customer feels the sunk cost cognitive bias, thereby compelling her to agree to an upsell. This is the “Well, I’ve already spent X, so I might as well spend X more” reasoning.
CLV is higher than CAC, especially if you’re simply trying to do some level of upsell. Any improvement in your CLV via upsells is going to have a vastly higher impact than reducing your CAC.
Notice this model, and how the upsold customer (green line) provides lower revenue at first, but eventually increases profitability.
Remember, we’re in a process here. At this point in the process, you haven’t asked for an upsell.
Instead, you’re preparing for the upsell.
And preparation is everything.
3. As Soon As Possible After The Initial Sale, Engage The Customer In An Upsell
Now, you go for the sale. At this point, I want to focus on timing.
The timing of your upsell is critical. Err on the side of sooner rather than later.
Why? Because the longer a customer continues, the closer they reach the end of the average customer life cycle. It’s a numbers game.
The sooner you gain an upsell, the sooner you gain all kinds of advantages:
- Greater profitability
- Higher retention rate for the customer
The longer you wait to ask for an upsell, the more you risk losing the customer to churn.
The common churn rate is a steady downward trend.
By gaining upsells early in the process, three benefits happen:
- You are marketing your upsell to a larger group. The later you do it, the more you’ve lost customers to churn.
- Slowing the churn rate. Customers who purchase an upsell are less likely to fall off.
- Increasing CLV early on. Greater returns on customer life cycle
The chart below tracks the impact of churn on SaaS growth. Typical churn rates indicate that your revenue plateaus at a certain point. With upsells, however, you can defy these models and consequently gain greater upsells.
The sooner you upsell, the better your chances of combating typical churn rates.
The most obvious way to fight churn is through customer acquisition. But a more effective way to fight churn is through customer upselling early on.
Why not during the initial sale?
Yes, I know that’s insanely early, but it makes sense, doesn’t it? You’re giving value, creating an achievement model, and following the process correctly.
Plenty of businesses do this. GoDaddy is a prime example of a business that upsells all throughout the process.
Obviously, your upsell timing depends on your product and your customers. Generally speaking, however, the earlier your upsell, the better.
There’s no need to be all sneaky about SaaS upsells.
You want the sale. They need your added value, so just ask.
Send them an email. Give them a call. Provide an in-app reminder. Your method doesn’t matter. Just don’t wait too long and consider making the first upsell affordable.
One of the biggest ways to suck at SaaS upsells is to be bashful about asking. Go bold with it. It’s a good thing for you as a business and for the individual or company as a customer.
Upsells are an all around positive thing, so go ahead and ask.
What have you learned about successful SaaS upsells? What is an upsell strategy for you?