A recent survey from KBCM Technology Group (previously Pacific Crest Securities) shows the substantial impact that up-selling, including expansions, can have on your SaaS business. Up-selling is the key way to lower the cost to acquire revenue which in turn shortens the payback of the customer acquisition cost.
Per the survey, the cost to acquire a dollar of ACV (Annual Contract Value) is much lower for up-sells, a median of $1.32 for $1 of ACV for new customers versus a median of $.71 for up-sells and $.38 for expansions. A difference of between 2-3X !! For purposes of this article when I refer to up-selling that includes expansion.
The average percentage of total new ACV that comes from up-selling is 34%. Larger companies tend to have a significantly higher percentage of their new ACV coming from up-sells than smaller companies although the percentage rarely exceeds 50%.
Given the importance of up-selling what are the keys to being successful at up-selling and why are some businesses more successful than others?
In this blog post I’ve identified seven requirements for successful up-selling. Previous blog posts have explored each of these in more detail. This checklist is an excellent way to review your SaaS business and start to diagnose any up-selling challenges negatively affecting your business.
- The Right Customer
- The Right Staff Skills
- The Right Staff Motivation & Incentives
- The Right Product Structure
- The Right Information
- The Right Tools
- The Right Customer Attitude – Happy & Satisfied
The Right Customer
This is an area that is often ignored or neglected but the up-selling process starts here. Are you marketing to the right future customers and are you acquiring customers who have the needs for your full product? If not, your future up-selling opportunities will be limited and no amount of time and energy can overcome having the wrong customers who just don’t need your product that badly.
The Right Staff Skills
Does your customer facing staff, whether they are account managers or customer success staff, have the skills to up-sell? They should be able to talk to the right levels within the organization, identify possible opportunities, nurture, close and help implement those opportunities.
The Right Staff Motivation & Incentives
Does your business provide the right incentives for your customer facing staff to focus the appropriate amount of time on up-selling activities? The key here is the right balance. Although a primary purpose of a customer success organization is up-selling many organizations avoid giving quota requirements because they feel this undermines customer trust.
The Right Product Structure
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 on # of users or on amount of storage used may actually inhibit some natural up-selling for new or additional uses of your product. 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.
The Right Information
Do your customer facing staff have the information they need to successfully up-sell? A successful up-sell requires customer organizational information, product information, product usage information and knowledge of the customer’s business and business goals. Without this information up-selling can be a haphazard process that erodes customer trust.
The Right Tools
There are a variety of tools that can facilitate successful up-selling including CRM systems, account planning systems and customer success systems. In addition strong communication templates and educational materials are important for giving a consistent message.
The Right Customer Attitude – Happy & Satisfied
Of course the customer has to be happy and satisfied with their current use of your product and trust the organization and people. The customer needs to feel that the recommendations of your customer facing staff are in the customer’s best interests. They also have to feel that the on-boarding or implementation process was successful. They should feel that past up-selling provided value to them. Remember this is a relationship, not a transaction.
If you address the above seven areas you will be much more likely to be successful up-selling your product. Each of these topic areas will be addressed in future posts.
This is an update of a blog post I originally wrote in 2016. It has been updated with current survey information.