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Upselling, Cross-Selling and Freemium Techniques

 

sales techniques

I was recently working with a startup that was having trouble growing its sales. The problem was the quality of its sales team (the people), what they were selling (the products) and 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?”, “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 are designed to get the fish on the hook and to eat even more in an economically advantageous way to the customer.  This primarily to help drive additional sales dollars, but 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.  Cross-selling is much more long-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”. Therefore, when you are building out your sales kits and training your sales teams, you can’t be satisfied with only selling them one version of something only once. You should build multiple versions of increasing quality to upsell them up the product curve. Get your customer addicted to the product, so they buy it at a higher frequency. Use this first sale as step one of a longer term plan to “land and expand” internally from there.

I am a big fan of the “freemium” models that many software-as-a-service startups employ 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, then even more highly desired features and functionality into a premium product for an even higher monthly fee.  Hence the word “freemium”— 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 that use 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 it removes any “friction” from the selling process. Who isn’t going to be willing to try something out for free? However, 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. This is a very clever sales and marketing tactic you should consider in your own businesses.

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, then scaling up your success across additional salespeople, corporate clients and individual departmental contacts from there.

This article was originally published on RedRocket VC, a consulting and financial advisory firm with expertise in serving the start-up, digital and venture community.

Image credit: CC by louisvolant

About the author: George Deeb

George Deeb is a managing partner at Red Rocket Ventures, a Chicago-based startup consulting and fundraising firm with expertise in advising Internet-related businesses. More of George’s startup lessons can be read at “101 Startup Lessons — An Entrepreneur’s Handbook.”

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