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“It’s time to start viewing upsells as a retention strategy.”
It’s a piece of advice marketing guru Neil Patel shared on his blog, in talking about the power of the SaaS upsell. Retention is the number one strategy for profitability, he writes, and in that light, upselling is one of the most effective, and underutilized retention strategies.
The cost of keeping a customer of course dwarfs the cost of acquiring one. And, congruently, it cost less to sell to an existing customer than a new one. The median Customer Acquisition Cost (CAC) for upsells is just $0.28 per $1, less than a quarter of the $1.18 spent to acquire $1 of revenue from a new customer, according to data from RJ Metrics. And the bigger the customer base, the bigger the opportunity upsells present.
But how do you successfully upsell without feeling like you’re saying the equivalent of, “do you want fries with that?” The best companies drive upsell opportunities with data – to know what their customer need to solve business problems, how much is reasonable to pay for it, and how to best evolve the product portfolio in tune with customer and industry demands.
In this regard, SaaS vendors would seem to have an advantage over on-premise ISVs because they have the ability to easily track usage data from their customers. This helps in everything from developing products that are worthy of upsell, to ensuring that customers are leveraging killer features developed, to tailoring special offers and tiered pricing in a manner that will resonate. On-premise vendors don’t inherently have this advantage – but can, with the implementation of software usage and compliance intelligence.
Let’s look at how having data on use can help drive upsell opportunities.
One of the top, consistent complaints of product managers is that customers aren’t using the killer feature in the product – and it’s a huge reason customers don’t perhaps realize all of the value they could in a new release. This situation has a host of ripple effects on upsell and retention. At best, customers are left feeling wanting and perhaps eying competitors’ functionality to augment that provided by your product. At worst, they can fail to renew contracts altogether or opt to rip and replace. And you can’t upsell a customer who leaves you.
By breaking down use by module and drilling into runtime session across the customer base as a whole, the places where users are hitting a wall become apparent very quickly. And further drilling down by other parameters – such as hardware or operating system or even geography – helps you find out why, and fine-tune options to encourage adoption of those pieces of functionality. With detailed information on how they’re using the product, you can target customers with thoughtful, relevant messaging and content on how to better user some of the features they already paid. This helps them better accomplish their jobs, and leaves them with a better impression of your software.
Now that users are leveraging functionality they already purchased to the fullest extent, let them know what they bought from you that they could stand to do without. That’s right, open up a conversation with your customers about their shelfware. Exposing shelfware to the customer is a competitive advantage, because it’s both a lead and a way to protect your foothold in the account. For instance, the sales team can talk with a customer about replacing software the user hasn’t found much value in with the new and innovative functionality engineering has developed. And, because you have insight into how customers leverage the functionality as a whole, marketing can create data-driven, compelling offers to purchase modules that seem almost personalized. This keeps customers from running to competitors for something you sell, but perhaps they didn’t know about or have confidence in.
Because you had a clear view into usage, this customer is now fully leveraging software it purchased from you and perhaps using more. It views you as a partner in innovation. And now that this relationship is strong, continued use of usage intelligence enables you to nurture and bolster it for more upsell opportunities. Usage data allows you to better define pricing levels and support and maintenance tiers that reflect business scenarios and resonate with customers. Customers are more likely to renew contracts (if the software is subscription-based) or continue to upgrade if it’s purchased according to more traditional on-premise licensing. Confident in their ROI, customers will look to you for more functionality. And when they do so, they’ll find that the engineering team has developed exactly what they were looking for – because development was driven by data on actual use.
Patel says a “SaaS upsell is the process of engaging an existing customer at a deeper level.” With usage intelligence, the “on-premise upsell” can become a key part of your customer retention strategies to drive long-term customer value and as a result, profitability.