The difference between cross-selling and upselling

The Difference Between Cross Selling and Upselling

What is cross-selling?

Cross-selling is the process of encouraging customers to purchase products or services in addition to the original items they intended to purchase. Oftentimes the cross-sold items are complementary to one another, so customers have more of a reason to purchase both of them.

After a customer has added an item to their cart or initiated the checkout process, they are implicitly telling the business they are an active customer and have the intent to purchase. At this point of the buyer’s cycle, businesses will often implement a cross-sell by recommending a complementary item or by providing a discount if both are purchased together.

As most customers are ready to make a purchase at this step anyway, they have already gotten over a major hurdle and are more likely to make a last-minute impulse purchase.

For example, if a customer is about to buy a smartphone, there’s a much higher chance they’ll be willing to also buy a pair of headphones or a phone case to go with it if they’re a good deal. In fact, Amazon estimates up to 35% of its revenue comes from these types of cross-selling practices.

What is upselling?

Upselling is the process of encouraging customers to upgrade or include add-ons to the product or service they’re buying. The product or service being promoted is typically a more expensive product or add-ons that can increase the overall order value.

Similar to cross-selling, upselling typically occurs in the part of the buyers’ journey where they have added something to their cart or initiated checkout and are more receptive to final sales efforts. As the customer has likely already researched the product, they may have considered the upgrade or add-on which should increase the likelihood they ultimately decide to make the switch at the last minute.

Take, for instance, the previous example of a smartphone sale. When a customer begins the purchase process, the business can offer them an upgrade to a model with more memory, a bigger screen, a faster processor, and so on. They can also offer things like warranties or purchase protection, which are affordable protections for the customer but are highly profitable to the company.

Cross-selling versus upselling

Cross-selling and upselling are both typically performed in the mid-to-late stages of the conversion funnel where a customer has already indicated they’re likely to make a purchase. Additionally, both strategies promote products or services known to be similar to the original item the customer planned to purchase.

Both cross-selling and upselling are essential to improving average order value (AOV) and profitability, and they can often be used together. However, they can have slightly different impacts on the business. For instance, upselling typically encourages upgrading to a higher margin product, while cross-selling may not always increase the margin rate but increases the average order value by adding additional products.

A company’s business model will ultimately dictate whether cross-selling or upselling is more valuable. For example, in an ecommerce business where customer acquisition or shipping adds a high fixed cost to orders, businesses will often want to maximize the average order value to minimize the effect of these costs.

Say you’re selling a $20 product with a 50% gross margin, $5 flat shipping cost, and $2 cost of acquiring customers through marketing. When selling a single unit, the net profit will be only $3. If you can cross-sell them to add a $5 item at a similar margin, you can likely package them together so that the shipping cost is barely affected and increase your net profit to about $5.50. So, by getting the customer to add just a small complementary product, you would be able to nearly double your profit on the order.

On the other hand, some businesses find it more valuable to prioritize upselling to get customers to upgrade to a higher end model or add add-ons. For example, businesses selling high-end electronics may find shipping and other flat costs are relatively negligible compared to the price of the item. Getting a customer to upgrade to a more expensive version of the product can impact profitability more than adding another small item.

Three examples of cross-selling and upselling

Upselling and cross-selling are used in all different types of businesses and industries. Here are three examples of ecommerce sites that have applied these sales strategies:

Sleep Outfitters cross-sells bed base with mattress

Sleep Outfitters is a leading mattress retailer. When a customer purchases a mattress, the website immediately displays a cross-sell by offering a bed base or foundation during the process of adding to the cart. Since they know what size bed the customer is shopping for, they can even recommend the correct size.

Graham and Green cross-sells home accessories with furniture

Graham and Green is a British home lifestyle merchandiser. When a customer purchases large furniture items from them and begins to check out, the website shows a cross-sell and suggests small interior accessories such as candles or lamps which complement the larger furniture the customer is purchasing.

Upsells warranties and protections plans with computers

HP is a leading international PC manufacturer. When a customer begins purchasing a computer from them, the website shows upsells through various warranty and protection plans. They even include visual indicators to nudge customers toward more comprehensive plans.

Find a platform that makes it easy to start cross-selling and upselling

Upselling and cross-selling are invaluable strategies for expanding your customers’ carts and boosting revenue. For these approaches to work, you’ll need an ecommerce platform with the functionality to get them into play. Adobe Commerce provides the necessary tools to generate cross-sell and upsell campaigns that convert.

Get a free demo of Magento to see how cross-selling and upselling strategies can grow your business.