Monday, April 29, 2013

Lesson #143: Upselling, Cross-Selling and Freemium Techniques

I was recently working with a startup that was having trouble growing its sales.  Part of the problem was the quality of its sales team (the people), part of the problem was what they were selling (the products) and part of it was how they were selling (the techniques).  We are going to tackle this third piece: the importance of upselling and cross-selling techniques within your sales efforts.

First of all, what's the difference between upselling and cross-selling?  Upselling is selling the same individual more things to increase their average order size.  Think of McDonald's who tries to upsell you fries or a soda to go with your burger.  Or, Best Buy trying to upsell you the extended warranty plan to go with that new digital camera.  You are trying to get more dollars out of that one customer at that point of sale. 

If you are a software company, an upsell could be something like: instead of our Silver Edition with basic features for $1,000, have you considered our Gold Edition with additional desired features for $2,000.  Or, instead of buying 10 licenses at $1,000 each ($10,000 total), I can get you 20 licenses at $750 each ($15,000).  Or, instead of running reports once a year for $1,000, you can run reports four times a year for $2,000.  All designed to get the fish on the hook, to eat even more in an economically advantageous way to the customer.  Firstly, to help drive additional sales dollars.  But, most typically, to also help drive materially more gross margin dollars, with limited incremental costs associated with that higher sales spend.

Cross-selling is more  about the concept of "landing and expanding" within a particular company.  Oracle may first break into a company selling them their database products to the IT department.  But, they are quick to spread like a "virus" within the organization to also sell the finance department their financial software package and the marketing department their CRM package.  Cross-selling is typically selling to different people or different departments, within the same organization.  And, is much more longer term in nature, than upselling more items into an immediate transaction at hand.

Any good sales organization needs to have effective upselling and cross-selling techniques built into their go-to-market strategies and tactical "bag of tricks".  So, when you are building out your sales kits and training your sales teams, you can't be satified by only selling them one version of something, only once.  Build multiple versions of increasing quality, to upsell them up the product curve.  Get them addicted to the product, buying it for more people in a higher frequency.  And, use this first sale, as step one of a longer term plan to "land and expand" internally from there.

Based on the above, I am a big fan of the freemium models that many software-as-a-service startups are employing these days.  Freemium models start off with a basic product that a company gives away for free to rapidly get new users into the family.  Then, they add additional desired services into a deluxe product for a monthly fee, and even more highly desired features and functionality into a premium product, for an even higher monthly fee.  Hence the word "freemium", at the intersection of "free" and "premium" versions of your product.  At the end of the day, freemium models are just an elegantly pre-packaged upselling technique for software companies.  LinkedIn is one of many examples using this model, letting anyone sign up and use the product for free, but charging for access to premium reports.

What I love about the freemium model is that is removes any "friction" from the selling process.  Who isn't going to be willing to try something out for free??  But, if correctly implemented, companies will give their new customers a chance to taste the "Kool-Aid" version of the product, to hopefully get them addicted and wanting even more from the "Dom Perignon" version of the product.  A very clever sales and marketing tactic you should consider in your own businessess.

So, think through your own upselling and cross-selling opportunities, and watch your own sales and margin dollars start to accelerate.  It all starts at getting more muscle out of a single transaction from a single salesperson to a single customer, and then scaling up your success across additional salespeople, corporate clients and individual departmental contacts from there.

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