First, it was Mac or PC. Then, it was the blue or gold dress. Now, it’s the upsell of an existing customer or going after a new sale. I know, the past 8 years have been a rollercoaster.
Start-ups have limited resources and capital. So, it is important to be intentional in how you scale your revenue. There are two main ways to get more revenue out of existing customers. You can upsell or cross-sell them. Or, you can go after new customers.
Upselling is when you encourage your customer to buy a higher priced alternative of the current product in the same product family. Or, you can augment the original purchase with additional features. JetBlue has made an additional $140 million in revenue through its upsell program called “Even More Space,” which is as American as it gets.
Cross-selling is when you recommend a product that complements a customer’s existing purchase from a different category. For example, if you run an e-commerce site, you can say to your customer, “I saw you just bought Tide Pods. Would you like some Tums with that?” Amazon has attributed up to 35% of its revenue to cross-sell, through its scarily accurate “customers who bought this item also bought” section.
Going after a new customer can be expensive. According to Invesp, acquiring a new customer is five times as expensive as retaining an existing customer. Another SaaS benchmarking survey stated that the average cost of acquiring a customer (CAC) to get a $1 annual contract value (ACV) from a new customer was $1.18. This means that it would take a company more than one year to cover the costs of that acquisition. While the CAC for an extra $1 in ACV from cross-sell and upsell efforts was only $0.28.
Yet, 44% of companies say they focus more resources on new customer acquisition. While 18% focus on retention, and the rest claim to have an equal focus.
So if it is cheaper to upsell a customer than go after a new one, there is a higher likelihood that you can close an upsell vs. a new customer, and it could lead to more revenue, why are 44% of companies more focused on acquiring new customers?
You can’t upsell customers if you don’t have any to begin with. And it is helpful to get logos on your website and in your pitch decks in order to exhibit scale and have a better chance of securing early venture funding.
Also, it is important for your customers to be referenceable in the first few years, regardless of what they’re paying you. It takes some time before you completely understand your customer and their journey, which you should do before you try to squeeze more money out of them.
McDonald’s employees wouldn’t say “would you like fries with that?” to a customer ordering a salad (those people exist), but they will ask someone with bloodshot eyes ordering chicken nuggets, a Big Mac and an apple pie.
Start at the beginning. When you sign up a new customer, ask them what success means to them. Then figure out ways to track that and show them in a year that you helped them hit those metrics. (Now that’s a takeaway)
What do your customers value most? Before taking over as the new CEO of American Express, Steve Squeri sat down with each executive at the company and asked them what they wanted from him, what they were afraid of, and what they were hoping for as he took on this new role. I imagine that most of them shared some helpful expectations and weren’t all just vying for a Centurion Card.
Actively check in throughout the year to continuously learn more about the customer and their complete journey. Don’t just throw stuff out there and see what sticks, like how Netflix has been green lighting “content”.
Tell a story. Have fun with it. Share an idea for how your customer can grow. Then explain how your upgrade can help them get there.
Upselling, cross-selling and acquiring new customers are all critical to scaling your business. Make sure you are intentional in how you are dividing your resources, tracking it effectively and only trying to upsell once you have a real relationship with your customer.
Regardless of what you choose, don’t lose customers.
I am a 25 year-old venture capitalist and amateur stand-up comedian living in NYC.