It seems like everything is offered ‘as a service’ these days: platform, infrastructure, recovery, storage, database, security, management, and more. There are so many, they had to create an all-encompassing term – XaaS, or Anything-as-a-Service – to represent them all.
The XaaS industry is booming, and it’s the software-as-a-service (SaaS) companies under that umbrella that are growing faster than any other type.
And with good reason: most businesses, from SMBs to enterprise-level companies – use at least a few of them. Customer resource management, accounting, invoicing, data management, human resources, resource planning, marketing, email, project management, and many more crucial cogs in the business machine are offered under the SaaS model.
In fact, the statistics paint a very, very rosy picture of the SaaS market share:
- 38% of companies already had 80% or more of their business apps provided by SaaS in 2016. That number is expected to top 86% by 2022. Businesses will run almost exclusively on SaaS.
- The SaaS public market will be worth $76+ billion by 2020.
Using a SaaS is typically cheaper, faster, and more collaborative than traditional systems. It allows for an increasingly mobile workforce, saves time, and reduces or outright eliminates the need for upgrades and maintenance. That’s great for business.
The SaaS companies themselves are enjoying fantastic growth and profits, but like any business, they have to keep an eye on acquisition, growth, and retention. They need to take active steps and track the metrics that matter.
A SaaS not only needs to grow, it needs steady and robust growth if it expects to succeed in the market. 20% growth would be wonderful in most industries, but a SaaS with that figure has a staggering 92% chance of disappearing within just a few years. Even a monster 60% annual growth delivers only a 50/50 chance of becoming a multibillion-dollar success story.
Product-led growth strategies include free trials (used by 47% of respondents in a recent OpenView survey), customer referral programs (29%), product-qualified leads, and the freemium model (17%).
Other growth tactics include retention initiatives – it’s up to 9x cheaper to retain than to acquire, and 55% list retention as the most important metric – amongst others.
And then there’s upselling and add-on sales – important to a healthy bottom line regardless of industry, yet only 54% of SaaS companies prioritize it.
That’s a shame, because upselling and add-on sales can help deliver the results you need to not only survive, but thrive.
Check out these 6 upselling lessons from the SaaS industry putting that theory to the test.
To Upsell is to Succeed
Used properly, upselling – selling a more expensive tier of service or additional add-on features – is a win-win scenario for company and customer.
Treat it like the retention, revenue, and happiness tactic that it is; find ways to make your service better and more powerful for them. They’re happy. You’re happy.
As an added bonus, it’s actually easier to sell to an existing client than it is to a new one. How often does that break in our favor?
“The probability of selling to a new prospect is 5-20%. The probability of selling to an existing customer is 60-70%.” ~Marketing Metrics: The Definitive Guide to Measuring Marketing Performance (2nd Edition)
Put simply: upselling speeds up your time to profitability.
There is tremendous demand for SaaS products, but that doesn’t mean it’s easy or a sure thing.
You’ve got to work for it. You’ve got to try, fail, learn from your mistakes, and try again. You’ve got to see what’s worked for others, and use the lessons they’ve learned to launch, grow, and achieve profitability faster than them (as the next generation will look to you to do the same).
And amongst everything else you’ve got to balance, manage, and do, you’ve got to embrace upselling from the starting line.
Ready, set, upsell.
Lesson #1 – Freemium to Premium Done Right
We’re spoiled for choice for literally everything online. No matter what you’re looking for, a simple Google search will hand you multiple options.
My search query for “budgeting software,” for example, delivered 175,000,000 results in 0.55 seconds.
Getting someone to give you more than a cursory glance means making it worth their while to look longer and in more detail.
To that end, a lot of SaaS companies choose the free route. Free forever plans, a 14-day free trial, a 1-month free trial, or a 30-day money-back guarantee can get your foot in the door when people are just browsing or are unsure your solution is the solution. That’s great.
And while there are some differences between a free trial and freemium model, both operate on the same general rule: get them using it for free, then get them to pay for it later.
But free, of course, doesn’t put money in your pocket. You’ve got to upsell that user once they sign up for free. Not immediately. But eventually.
This freemium (free) to premium (paid) acquisition model is incredibly popular – you’d be hard-pressed to find a SaaS that doesn’t do it in one way or another – but not everyone is equally successful at it.
Spotify is killing it with freemium to premium: users can quickly sign up for a free-forever, ad-supported account. But of the platform’s 159 million users, an amazing 71 million are premium accounts.
That’s a conversion rate of 45% where most others average between 1-5%. For comparison, Dropbox is considered a very successful user of the freemium method, and they convert about 2.2%. Spotify is definitely an outlier, but it does show you what’s possible.
To convince your users to open their wallets, you have to:
- Make the user experience (UX) absolutely stellar
- Present clear tier definitions that highlight the benefits of the paid levels
- Send a welcome email that includes your thanks, a demo or how-to video, additional resources, and/or a few key benefits
- Provide nurturing that includes email, phone calls (if appropriate), webinars and videos, tips, tricks, and hacks to win them over
- Use triggered messages
- Give demos
- Offer personalization at every touchpoint
- Propose a ‘last chance’ end-of-trial email where you offer to extend the trial or a special discount or coupon to upgrade, or share a success story, reveal one more benefit, or remind them of what they’ll be losing
Companies like Spotify are converting well above the average because they understand how to nudge users through the freemium to premium tunnel.
A free trial period comes with the full feature set, but a limited amount of time. You can plan your nurturing accordingly within those 14 or 30 days.
A freemium model comes with either a reduced feature set, usage quotas, and/or limited support but is free forever. Your nurturing needs to be triggered by that: reached your quota for the month? Upgrade. Looking to X? Upgrade.
There’s a reason everyone from Costco to your neighborhood bakery or grocery store offers free samples. If you give them a little taste – literally or figuratively – many will be happy to buy more. Give them some, but then take it away.
It just works.
Lesson #2 – Celebrate Milestones
We all love a little attention. Your customers are no different. Remember and celebrate milestones with them, and the connection between you gets a little deeper. That’s a huge win.
A milestone might be X number of sessions or completed tasks, using a particular feature for the first time, the length of their subscription, reaching a specific goal, time as a user, and so on.
These are all great moments to reach out and connect, because marketing is about getting the right message to the right person at the right time. Milestones are the right time.
Recognize and remind them of the value they’re already getting, with a customer-focused upsell suggestion based on their past behavior and current needs. They’ve just accomplished X. With the upgrade to the next tier, they can get to Y.
If your SaaS played a part in their latest win, now is the time to upsell because they’re feeling very warm and fuzzy about you, your service, and your expertise.
Identify the milestones, and align your upsell recommendations to what’s going on with them, what they need next, and how you can make their lives or business better. Have a conversation. Explicitly explain how the upsell can help get them to their next milestone, whatever it may be.
Most customers are eventually ready for an upsell. So give it to them.
Lesson #3 – Increase Their Joy
We’ve all heard of the ‘runner’s high’, right?
I’m here to tell you that the same is true for a consumer. Most of us get a buyer’s high when we finally find and purchase the perfect product or service that fixes a problem, fills a need, or scratches an itch.
You can use that. Increase their joy when it’s at its highest, and you’re officially their new best friend.
When a customer is just about to purchase, subscribe, extend, or otherwise, suggest a highly relevant upsell or add-on idea before they click the “pay” button. Strike while the positive sentiment iron is hot.
Include upsell suggestions right on the product or service page. When it’s right there staring us in the face, it’s hard not to think “Yeah, that would be better.”
Recommend an upsell in their shopping cart just before they confirm their order: a longer purchase term, more storage capacity, or whatever else will help them and increase their joy with their purchase decision.
Bluehost and other hosting providers, for example, suggest an SSL certificate and other add-ons and upgrades directly in the cart when choosing a plan, selling it as peace of mind with a more secure, more robust site.
Companies like Amazon and Apple have grown into international behemoths using this simple tactic. Be like them.
A worthy point to note here – just because you can charge higher for a product or a service does not mean you should. SaaS pricing is all about the value/price ratio. As this Baremetrics article explains, devise a pricing model where your customer derives the maximum value for the price they pay. Increase the value/price ratio on your higher priced plans and watch your customers upgrade happily.
Lesson #4 – Interact and Upsell
The best upsell opportunities come from connecting with and understanding your customers’ goals, motives, obstacles, strengths, and weaknesses.
Then, you can offer upsells within the context of an idea: reaching a goal, overcoming an obstacle, further developing a strength, or eliminating a weakness.
Every touchpoint with an existing customer is an opportunity to make their lives better. What are they contacting you about? Can you simplify, decrease, increase, eliminate, and so on with an add-on or upsell?
Explicitly outline how the upsell does that, with concrete numbers if possible, and it’s generally an easy sell. Take the time to show them you understand them, and they’ll be willing to further invest with you.
Listen. Be honest with them. Ask questions. Clarify. And demonstrate your value with either a recap of what you’ve helped them accomplish so far, and/or user testimonials, reviews, and other types of social proof.
Remember: they’re not buying a product, they’re buying you. Show them you’re worth it. Show them you’re a partner interested in their success.
Lesson #5 – A Happy Customer is Ready to Spend
The worst time to suggest an upsell? When a user is unhappy, dissatisfied, or frustrated with your service.
The best time? When they’re happy, satisfied, and thrilled.
Track your user sentiment with Net Promoter Score (NPS) and/or glowing reviews and testimonials and/or just after referring someone to you, and reach out to promoters, cheerleaders, and advocates.
Lesson #6 – When They Need It Most
Free accounts and lower tiers have correspondingly lower capacities, quotas, and features.
An upsell practically sells itself when delivered right when they need it most: capacity reached, quota filled, missing feature needed.
Dropbox has an automatic suggestion to upgrade when a user’s storage limit is reached. It pops up directly in the app or website, and the upgrade is literally accomplished with a click. A full folder in this case means the user is happy with and using the service, so they’re primed for that upsell.
Another when-they-need-it-most moment is when a user accesses a particular how-to guide or help forum for which you have an add-on or higher tier feature that can simplify or solve it.
Sometimes, the upsell is a gift.
- Pitch benefits, not features
- Keep it quick and easy to say ‘yes’
- A few highly-relevant suggestions are better than lots of so-so ones
- Keep an upsell within 25% of their initial choice
- Never attempt an upsell or add-on with an unhappy customer
- Try a side-by-side comparison to highlight the value
- Avoid aggressive, pushy tactics, and be prepared to accept ‘no’ as an answer
Upselling is crucial to SaaS growth, and up to 20x more effective than cross-selling.
Help them win, and you both win.
What’s your upselling strategy? Is it part of your sales mix? Leave your comments below: