What Is Upselling?
In B2B SaaS, upselling is a growth driver that pursues existing customers to buy an upgraded version of a product containing premium features or an array of additional services. It is a popular business strategy designed to meet four primary objectives – increasing monthly recurring revenue (MRR), boosting customer lifetime value (CLV/CLTV), reducing customer acquisition costs (CAC) and enhancing customer loyalty through long-term business relations.
One of the best upselling examples is to turn free users into paying customers, where SaaS companies offer a freemium model. To push upselling, they will highlight the limitations of a free account as opposed to the premium options sold through tiered pricing (say, gold, silver and bronze subscriptions, where the last one has minimum features, but these are still better than free plans).
Others tap into their customers in a timely manner, especially when the existing features are about to be used up or free trials are nearly over. These upselling prompts are contextual, stressing expansion needs or upgrades when most required.
Think of Loom, a SaaS company that allows users to make and share video messages by recording their screens, cameras and microphones. Recordings are free for up to five minutes, after which a relevant prompt comes up for an upgrade to expand the time limit or enhance the video quality.
SaaS companies also provide limited-time deals and discounts to motivate customers to switch to advanced plans. However, ‘upselling’ success depends on three pillars – a thorough understanding of the new, value-added features, their relevance in customer success and meaningful interaction with sales and marketing teams instead of a routine or aggressive call to action (CTA).
How To Identify If A Customer Is Ready For Upselling
Here are three key elements to help SaaS companies identify upselling opportunities:
- The proof of the pudding: Upselling opportunities arise when customers can corner success using the initial product and have first-hand proof of its efficacy.
- Flabless operations: In a post-pandemic world, flabless is fabulous, and businesses must streamline their processes to grow sustainably. Whether a company is expanding or undergoing strategic changes to cope with multiple challenges simultaneously, SaaS companies should keep an eye on their evolving requirements for relevant upselling. For instance, when a company wants to tackle rising workloads cost-efficiently, it will upgrade to automated systems across its operations.
- Referrals: If people at large are referring to a SaaS company’s new products, its existing customers will give it a try, thus presenting an opportunity for upselling.
Eight Ways To Kickstart SaaS Upselling
- Look for upselling opportunities by identifying key indicators such as fast-reaching usage limits, expansion plans, strategic shifts and more.
- Automate upgrade prompts to ensure that relevant offers reach customers without delays caused by manual interventions.
- Provide hassle-free self-service to upgrade subscriptions and improve customer experience.
- Offer third-party integrations to improve upsell strategies and tailor services to meet unique customer needs.
- Define measurable objectives to align with customers and track progress. This will help identify potential upsell candidates.
- Make informed decisions by using qualitative and quantitative data to gain real-time insights.
- Track pivotal moments in the customer journey for upsell opportunities and create a playbook for responsive actions.
- Develop a feedback funnel through communication channels for enhanced customer experience and continuous improvement.
How To Measure Upselling & Why It Is Important
Simply put, it is the sum of upgrades and subscription reactivations in a given month. It can be measured by expansion MRR: The difference between the current month’s and the previous month’s recurring revenue from existing customers without considering one-time fees. It means expansion MRR rate (in %) = Expansion MRR in the current month – Expansion MRR in the previous month/Expansion MRR in the previous month x 100.
In essence, upselling bolsters business stability, customer satisfaction and long-term success. After all, additional revenue from existing customers is crucial for every company as it incurs zero CAC and indicates customer retention over the long haul. However, like other complex metrics, it should not be considered in isolation. Analysing upselling numbers with customer churn rates or net MRR provides a better understanding of a SaaS company’s credibility and financial health.
Upselling Vs Cross-Selling
Upselling and cross-selling are two distinct manoeuvres to drive revenue. In the first case, it is all about convincing existing customers to spend more on a premium or feature-laden version of the product they have already purchased.
On the other hand, cross-selling recommends buying complementary items that will create more value by diversifying the shopping cart. Product bundling is a common practice in this realm, and many try to personalise the entire package, thus hitting a higher AOV (average order value) from every sale.
For example, when a business buys project management software, a SaaS company may suggest time-tracking tools or team communication apps for cross-selling. With successful cross-selling strategies in place, SaaS players can master the art of attracting customers, enhancing value and earning higher profits.
