What is Upselling? And How Can it Benefit Your Business?
Upselling is when you offer an additional product, service, or feature to a customer who has already decided to purchase from you. Upselling benefits your business because it can increase the size — and profitability — of each sale.
What is Upselling — in Context?
The idea behind upselling is that the customer has signalled intent to purchase and is near completion of the sale. You’ve already convinced the customer to do business with you. Now you can improve your bottom line by getting buyers to add to their orders.
You’ve seen this technique countless times.
Everyone is familiar with the fast food rep who asks, ‘Would you like fries with that?’ Or perhaps, ‘Would you like to supersize that?’
But upselling is not limited to restaurants. Software vendors also upsell.
“‘For just $10 more you can have three additional features’ is an example of an upsell,” explains marketing expert Ivana Taylor of DIY Marketers.
Ecommerce sellers also upsell. Ever try to buy a domain name online? Before the check-out screen you’ll likely be asked if you want a hosting plan, privacy services or other add-ons.
The beauty of upselling is that it applies to every type of business.
How to Make Upselling Benefit Your Business
Here are 3 essential things to make upselling benefit your business:
1. Know Your Costs
No answer to the question ‘what is upselling’ would be complete without addressing profits. You must have a good handle on:
- The cost of your products and services. What does it cost you to produce and deliver your product or service? Obviously you have to net more than your cost, for a profitable sale.
- The cost of customer acquisition. How much does it cost you to acquire a new customer? For instance, if you use Google AdWords and a campaign works out to $30 per customer, be sure to factor that cost in, as well.
Talk to an accountant or bookkeeper who can help you identify your costs. It’s more than basic materials. Consider labor, branding, packaging, commissions and any other costs. Break costs and profits down by individual products and services.
2. Set Upselling Goals
Once you know your costs, separate your products and services into those with a high profit margin and those with a low profit margin.
Pick high margin items for the upsell. This is where you get the most leverage.
Set a goal for how much you want to profit from the upsell:
- Let’s say your average transaction size is $65. But of that, you only net $5 in profit.
- So you set a goal to increase your net profit to at least $15 per transaction. You strategize and come up with an upsell package that brings an added $10 in profit.
Upsell profits are efficient profits. You’ll net more profit for relatively little effort.
Why? Because the act of upselling is nothing more than asking questions at the end of the buying process.
3. Create Irresistible Offers
Taylor says, “Once you know your costs and set your profit goal, create an irresistible offer. This offer should include a mix of appealing high margin products or services paired with your core offer.”
Pick offers that are complementary. The basic offer and the upsell should appeal to the same buyer. But the items should be different enough that the buyer perceives added value.
For example, if you’re an author, don’t try to sell the buyer two more of the exact same book. Few people want multiple copies of a book. But if you have another title out, some buyers will jump at the chance to get both titles as a package deal.
On the other hand, if you are selling consumables, the buyer might want to buy extra quantity. Think of Costco. Bulk deals may pay off if you can buy large quantities wholesale, pass along some of the savings, and still retain a profit.
Upsells can also be a warranty or protection plan.
Or they can be an upgraded version of the basic offering. For example, if you’re selling a subscription to a membership site for $129, you could offer a Pro membership with added bells and whistles for $159.
One final point: Don’t be pushy. Not all customers will go for an upsell. And that has to be okay.
If you push too hard, you could alienate customers. Simply present the option. Let the buyer decide.
Recap of Upselling Steps
1. Figure out your costs. This can be challenging, but it’s worth the effort.
2. Set your goals. Done thoughtfully, upselling can boost your company’s bottom line.
3. Create a compelling package. Create an upsell package that offers extra value and is relevant to customers who have bought your flagship offerings.
I hope I’ve satisfactorily answered “what is upselling.” More importantly, I hope you walk away understanding the benefits to your business.
Written by Gail Gardner