The Right Product Structure for Successful Up-selling

My blog post Seven requirements for successful up-selling listed the fourth requirement for successful up-selling as needing the right product structure. Based on the sources quoted in that blog, SaaS providers who are successful at up-selling have lower selling costs for those up-sells and higher growth rates. Intuitively up-sells are easier sales because they are to existing customers and therefore less expensive and can help accelerate growth and this is also supported by facts.

In this blog I’ll cover the fourth requirement, that you have the right product structure for successful up-selling.

There are a variety of ways to structure your product to facilitate up-sells and some are more successful than others. Structuring and pricing your product based purely on # of users or on amount of storage or other infrastructure in use may actually inhibit some natural up-selling for new or additional uses of your product as companies try to limit the amount spent on your product. This is especially true when your software is used by a limited number of users, is at a high price point and/or does not provide sufficient value for incremental use.

An offer structure that relies on a customer structure that is unlikely to change does not provide many up-sell opportunities. Company size and number of users can be a very limiting offer structure if you are providing an offer to a market that has limited growth of both of these. Human Resources (HR) SaaS offers that are only used by HR professionals are an example of this. No one particular company is likely to grow so much that the increased features required for a larger company and the number of HR representatives will provide much account growth. This is, of course, why HR SaaS offers usually have a feature that can be used by every employee. This allows growth as the number of employees grows, along with the opportunity to increase value by selling additional features.

Aligning your pricing and customer value in a direct way is ideal. Revenue sharing is an excellent example of that alignment but there are other ways to do that when revenue sharing is impractical such as basing pricing on the # of transactions or as a % of transactions. Billing software is an example where the cost is usually based on a % of the dollar value of the transactions. In all of these cases as the business grows a customer is usually very willing to pay for the value since it is proportional to the business growth.

Take a good look at the structure and pricing of your SaaS product. Is there at least one path for a customer to get added value once they have started using the offer? Ideally there are a couple paths. Some combination of additional features or modules, additional users, increased usage or increased service level should be available.

Make sure that you don’t confuse options that a new customer has to choose from with up-sell options. For example, if your offer is structured such that one configuration choice is more expensive than another and the customer has to choose one at the beginning, that is not a feature designed for up-selling.

To continue the example, many SaaS offers are structured as some variation on the basic, corporate and enterprise editions and are sold on a per-user basis at a different price point for each version. If the basic version is structured as what is needed for a small business and it is sold to a small business, then the chances of that customer upgrading to the more expensive corporate or enterprise edition is minimal. So with only these options, this structure has a limited option for up-selling to most customers since the chances of really changing the size of the company and therefore switching offers is small. The only opportunity for up-selling in this case is additional users which may not result in many additional sales.

Contrast that structure with the structure of basic, advanced and premium users. In this case, there is the opportunity for every user to migrate from a basic user to a premium user as additional features are needed and the user becomes more sophisticated in their use of the software. This approach can also be implemented using additional modules of software. Either approach along with the option of additional users provides a stronger model for successful up-selling since there are two up-sell paths.  Ideally, your SaaS offer should provide up-sell opportunities along at least two different pricing vectors.

Up-sell opportunities that do not require a lot of effort to sell work best. Examples of this include naturally increasing number of users, additional resources needed such as storage space and additional transactions. If your offer naturally fits with one of these models, it is a great way to go.

–Paul–

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