As most marketers know, acquiring a new customer is significantly more expensive than retaining an existing one. Furthermore, existing customers are much more likely than new ones to try new products. This is part of what makes upselling so valuable — it allows you to take customers who are likely about to convert and sell additional products to them at a much lower cost than otherwise would have been possible with a colder audience.
Upselling is a highly effective way for businesses to boost their revenue and profitability by encouraging customers to upgrade or add extra items to their carts. Indeed, upselling can unlock major opportunities for your business — but why does it matter, what makes upselling different from cross-selling, and how do you do it successfully?
In this article, you’ll get a deeper understanding of all things upselling, from its benefits and strategies to best practices and more. Specifically, you’ll learn:
- What upselling is
- What the benefits are
- Upselling best practices and techniques
- How to get started with upselling
- Upselling FAQ
What is upselling?
As a sales strategy, upselling is the process of encouraging customers who are purchasing a product or service to upgrade to a more expensive version of the item or to include add-ons with their order.
Upselling typically occurs in the phase of the buyer’s journey where a customer has already added something to their shopping cart and is not sure if they are going to purchase or not. This person has likely already done their research on the product and can more likely be swayed to upgrade to a premium version of it.
Upselling is an important sales strategy for all different kinds of companies, as it can increase both average order value (AOV) and overall profitability. This is particularly useful for ecommerce businesses with fixed costs like shipping and marketing, which can be relatively expensive on smaller orders or on items with low gross margins.
Not only is it easier to target existing customers than acquire new ones, but by continually demonstrating brand quality and offering special incentives, you can also build customer loyalty.
Upselling vs. cross-selling
Upselling encourages people to upgrade from a more basic level of product or service they were planning on purchasing. Cross-selling is the process of encouraging customers to purchase products or services in addition to the original items they intended to purchase.
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, each strategy promotes products or services known to be similar to the original item the customer planned to purchase.
Both techniques are essential for improving AOV and profitability, and they can be used together. However, they can have slightly different impacts on the business. For example, upselling usually encourages upgrading to a higher margin product, while cross-selling may not always increase the margin rate but rather boosts the average order value by adding additional products.
Say you sell cybersecurity software, and you are trying to upsell a customer by encouraging them to buy an upgraded plan from the basic one they plan to buy. If they’re on the fence about purchasing the upgraded plan, you can cross-sell by throwing in a discount on another service if they buy the upgraded plan.
What are the benefits of upselling?
Upselling can help your business reach new heights by increasing AOV, profitability, and, in the short term and even long term, overall revenue.
- Upselling is easier than getting new customers. As mentioned before, it's easier to upsell than it is to try to generate new customers. By upselling, you can increase customer lifetime value (CLV) — the total amount of money a customer spends on your products for the duration of their relationship with the business. CLV helps you understand customer needs by analyzing the products they’re purchasing, when and why they’re purchasing, and more. Research shows that 80% of your company’s future profit comes from 20% of your existing customers.
- Upselling adds value for the customer. Upselling adds value to your business for many reasons, but it can also greatly benefit your customer base. Done right, upselling should go beyond addressing the basic problems and needs a customer has and deliver more value and a better product. By getting a high-quality product in your customers’ hands and explaining the benefits, you build trust with customers and foster an improved relationship with them.
- Upselling increases revenue. Upselling has the potential to boost your company’s revenue through the sale of higher priced products. Upselling can increase CLV and AOV, which helps you to analyze your pricing strategy and marketing efforts by providing the metrics necessary to determine the long-term value of customers. This can increase overall revenue.
Upselling best practices and techniques
You have the opportunity to increase your current customer spend and revenue by taking a walk in your customer’s shoes. By listening to customer feedback and thinking of the questions they may ask ahead of time, you can market your product to their individual needs.
Understand your customer
What is holding your customers back from upgrading their products? By understanding your customers and taking in their feedback, you can better tailor your product to their different wants and needs.
- Know their pain points and needs. Use customer data and information to gauge what is important to them and how your product can solve their problems. Analytics are a great tool for customer engagement. By optimizing your customer experience, you can create individual offers, discounts, and additional information based on each customer’s needs.
- Listen to them. By analyzing customer data, information, and analytics, you can better prepare yourself to listen and understand why a customer may be interested in upgrading to a premium product. You can use channels like social media and the customer service help desk to collect feedback and then act on it. Customers may contact you with specific questions on product benefits and features, which gives you information easily. By collecting and analyzing the data, you can tie specific product offerings to customer needs.
Grow trust and loyalty with customers
By understanding your customer base and using their feedback to share your product’s benefits, you can more easily build a strong relationship. Then you can grow customer trust and loyalty with a couple of simple strategies.
- Know your product. If you’re not able to answer customer questions, they’ll have doubts about the product quality. It’s essential to know the ins and outs of what you’re selling. Customers are more likely to trust and come back to a company that has helpful, knowledgeable salespeople.
- Dedicate yourself to customer service. When you go above and beyond to address customer questions and concerns, they’ll be more likely to continue investing in your company. By creating a positive, informative experience, your customers will be more inclined to upgrade their products. Poor customer service and minimal assistance when help is needed can leave people feeling ignored by your company and less likely to want to upgrade.
