When it comes to making money with a SaaS business, there are a few key metrics you need to pay attention to. A few of these metrics include those that are related to your upselling efforts. We’ll specify all of these key metrics later in this article, but by tracking these numbers, you can identify opportunities to increase your SaaS business’ profits.
In this post, we’ll take a look at five essential SaaS upsell metrics and explain what they mean for your SaaS business, along with several upsell strategies that will increase your monthly revenue. Let’s get started.
Upselling in SaaS – The What, Why, and How
Upselling is a sales technique where a seller encourages the customer to purchase more expensive items, upgrades, or other add-ons in order to make a more profitable sale. In the world of SaaS, upselling can be a very effective way to increase revenue and customer lifetime value.
Upselling works by providing additional resources that complement customers’ interests. For example, if you have a basic subscription plan for your software application, you can offer premium features or additional resources for an additional fee.
If you have a new special feature or add-on for your software that you think would be of interest to your customers, you can use upselling as an opportunity to inform them about it.
Upselling Vs Cross-Selling
Upselling and cross selling are two different strategies for increasing revenue and profits.
About 44% of SaaS businesses say that they generate 10% of new revenue from upselling and cross selling. No wonder half of SaaS companies deem the two strategies a high priority.
It’s important to distinguish between upselling and cross-selling as they both have different goals.
Upselling involves promoting more expensive or upgraded versions of the same product while cross-selling involves selling complementary products.
For example, if you have a software application, upselling could involve offering an upgrade from basic to premium plans. Let’s say you’re a SaaS company that offers a basic subscription for $10/month and a premium subscription for $20/month. Upselling would be selling the premium subscription to a customer who is interested in the basic subscription
Cross-selling, on the other hand, could be promoting related services like training and support to a customer who is interested in buying from you. For example, let’s say you own a website design company. A customer comes to you wanting a new website. This would be an opportunity to cross-sell additional services like website maintenance, SEO, or PPC advertising.
Benefits of Upselling & Cross-Selling
There are many benefits of upselling and cross-selling, including:
- Increasing revenue: By selling higher priced products or services, or by selling additional products and services, you can bring in more money for your business
- Boosting customer satisfaction: This is because you’re providing your customers with exactly what they need, when they need it. If you can solve a problem for your customer before they even know they have it, they’ll be very happy with your service
- Improving relationships: By showing that you’re invested in their success, you’ll build trust and goodwill that will last for years to come
While upselling and cross-selling are two important strategies in boosting your SaaS growth, this article focuses on upselling.
Common Upsell Strategies
There are many different ways to upsell to your customers, but some of the most effective methods include automating in-app messages, customizing offers based on consumers’ habits and preferences, and evaluating the impact of different upsell strategies with A/B testing
Automating In-App Messages
One benefit of automating in-app messages is that you can time them so that they appear when the user is most engaged with your product.
For example, you could send a message 30 days after the user first signs up for your product, offering them a discount on a premium version of the product.
Customizing Offers
Another benefit of upselling is that you can customize your offers based on the consumer’s habits and preferences.
For example, if you know that a customer frequently buys products from your website, you could offer them a discount on their next purchase. Or, if you know that a customer has been using your product for 6 months, you could offer them an upgrade to a premium version of the product.
A/B Testing
A/B testing is another great way to evaluate the impact of different upsell strategies. With A/B testing, you can test two or more different versions of an offer to see which one performs better. This allows you to fine-tune your offers so that they are more effective at converting customers.
SaaS Upsell Metrics That You Should Track
To measure the success of your upselling efforts you need to track key metrics such as:
1. Total Revenue
Total revenue is the total amount of money that a customer pays over the lifetime of their relationship with a SaaS company.
This includes not only their initial purchase, but also any upgrades, downgrades, or other changes that they make to their subscription.
By tracking total revenue, SaaS companies can get a better understanding of which upsells are working and which are not. This in turn allows them to make more informed decisions about how to grow their business.
Moreover, by tracking total revenue, SaaS companies can better assess which customer segments are most valuable and where they should focus their growth efforts.
2. Average Order Value (AOV)
The AOV is an important SaaS upsell metric to track because it measures the average amount of revenue generated per transaction.
This metric is important because it helps SaaS companies understand what products or services generate the most revenue per transaction, and which ones are not performing as well.
By tracking AOV, SaaS companies can make informed decisions about which features or add-ons to offer as upsells, and set appropriate pricing.
In addition, SaaS companies can use this metric to measure the success of their upsell campaigns. If the AOV increases over time, it means that the SaaS company’s upsell strategy is effective. If the average order value decreases, it could be an indication that the SaaS company’s upsell strategy needs to be revised.
By definition, your SaaS AOV is the average amount spent per order.
To calculate it, simply take your total revenue for a period of time and divide it by the number of orders during that same period.
For example, if you had 100 orders in a month and those orders totaled $5,000 in revenue, then your SaaS AOV would be $50.
SaaS businesses typically have quite a bit of upsell potential because customers are already using (and presumably getting value from) your product. If you can increase the AOV, it will have a direct impact on your bottom line.
There are a few key things to keep in mind when thinking about how to increase your SaaS AOV:
- Offer additional features/functionality that would be valuable to your target customer,
- Develop a pricing strategy that optimizes for value rather than price point alone, and
- Cross-sell or upsell complementary products/services. Increasing your SaaS AOV can be a great way to boost revenue without having to acquire new customers.
3. Customer Lifetime Value (LTV)
SaaS companies typically have two types of customers: those who pay for the product monthly and those who pay for an annual subscription. The CLV is the metric that SaaS companies use to track the revenue that a customer will generate over the course of their lifetime
There are a number of reasons why CLV is such an important metric for SaaS companies.
First, it provides a stark contrast between the two types of customers.
A SaaS company that has a high CLV will have a much higher revenue stream from their annual subscribers than from their monthly subscribers. This difference can be used to inform marketing and sales strategies.
For example, if a SaaS company sees that their monthly subscriber CLV is significantly lower than their annual subscriber CLV, they may want to focus on selling more annual subscriptions
Additionally, CLV can be used to measure customer churn. SaaS companies with high churn rates will see a corresponding dip in their CLV. By tracking CLV, SaaS companies can develop strategies to reduce churn and improve retention
Check out our blog on How To Increase Customer Lifetime Value For SaaS Businesses for more information.
4. Expansion MRR
Expansion MRR is defined as the monthly recurring revenue generated from existing customers who have upgraded their subscriptions.
To calculate Expansion MRR, simply take the total price of all upgrades divided by the number of customers who upgraded their subscription in that month.
To get started measuring Expansion MRR, first determine when to offer an upsell opportunity. For example, you could offer an upgrade after the customer has been using your product for 6 months or after they have made 10 purchases from your website.
Once you’ve determined when to offer an upgrade, calculate the monthly recurring revenue generated from those customers who have upgraded their subscription.
Then use in-depth analytics to track your overall Expansion MRR performance over time so that you can fine-tune your strategy as needed
5. Upsell Rate
Upsell rate measures the percentage of customers who purchased additional features or upgraded their plan. This metric is used as an indicator of future growth.
Unlike other metrics such as customer churn or CLV, upsell rate focuses on existing customers who have already adopted or used the SaaS product.
A high upsell rate indicates that customers are satisfied with the SaaS product and are willing to pay for more features or add-ons in the future.
A low upsell rate may indicate that the software is not valuable to customers or that the SaaS company is not doing a good job of selling their upgrades. Upsell rates can also be affected by macroeconomic conditions, such as recession, so keep that in mind.
The relationship between upsell rate and renewal rate is important to understand.
A high renewal rate does not necessarily mean a high upsell rate.
For example, a cohort of customers who renew their subscription at 95% may have a low upsell rate if only 5% of those customers purchase additional software or services. On the other hand, it’s possible to have a lower renewal rate and a higher upsell rate.
On the other hand, a cohort of customers who renew their subscription at 70% may have a high upsell rate if 30% of those customers purchase additional software or services.
Calculating Upsell Rate
To calculate the percentage of customers who purchase upgrades for their accounts, we first need to identify the total number of customers in the cohort and the number of customers who made an upsell purchase.
For example, assume that there are 100 customers in Cohort A and 10 of them made an upsell purchase. The upsell rate for Cohort A would be 10%. We can then compare this upsell rate with other cohorts to identify trends over time or differences between cohorts.
Optimizing Your SaaS Upselling Strategies: Best Practices
Upselling is not a one-size-fits-all proposition. In order to be successful, your upsell strategy must be tailored to the specific needs of your target market. With that in mind, let’s take a look at some best practices for upselling your SaaS platform.
1. Define your goals
Before you can even begin to think about what kind of upsell strategy will work best for your business, you need to first take a step back and define your goals. What exactly are you hoping to achieve with your upsells? Are you looking to increase customer lifetime value? Drive more revenue from existing customers? Boost customer satisfaction? All of the above? Once you have a clear understanding of your goals, you can start to develop an upsell strategy that will help you achieve them.
2. Know your SaaS product inside and out
If you want to be successful at upselling, it’s important that you have a thorough understanding of your product and what it has to offer. After all, how can you sell something if you don’t even know what it is or what benefits it provides? Take some time to familiarize yourself with all aspects of your product so that you can be better prepared to sell it.
3. Identify your most valuable customers
Before you can start devising an upsell strategy, you need to identify which of your customers are the most valuable. To do this, you’ll need to segment your customers based on a number of factors, including but not limited to:
- How much they spend per month/year
- How long they’ve been using your platform
- The number/types of features they use
- Their engagement level (logins per week/month, etc.)
Once you have your most valuable customers identified, you can start crafting targeted upsell offers that are more likely to resonate with them.
4. Keep it simple
When devising your upsell offer, it’s important to keep things as simple as possible. The last thing you want is for your customer to feel like they’re being bombarded with too much information or too many options. You only have a limited amount of time and attention to make your case, so make it count!
5. Be transparent about pricing from the start
When it comes to pricing, SaaS companies need to be upfront and transparent about what their products or services will cost from the outset.
This way, there are no surprises down the road when it comes time to upsell a customer on a new feature or functionality. customers will appreciate your honesty and be more likely to trust you when it comes time to make a purchase.
Read 9 SaaS Pricing Strategies For Generating The Best Possible Revenue for more tips.
6. Focus on the value, not the price
When you’re trying to upsell a customer, it’s important to focus on the value that your product or service will provide, not on the price. Customers are far more likely to make a purchase if they feel like they’re getting a good deal—so make sure you emphasize the benefits of what you’re selling, rather than just its cost.
7. Don’t overdo it with the upsells
It’s important to remember that too much of anything can be a bad thing—and that includes upselling your customers. If you’re constantly hitting them with new offers and deals, they’re going to get annoyed—and may even unsubscribe from your service altogether. So make sure you find a happy medium when it comes to how often you upsell your customers.
8. Make it irresistible
The best way to get someone to say “yes” is by making them an offer they can’t refuse—and that’s exactly what you need to do with your upsell offer. Whether it’s a discount, bonus content, or exclusive access to new features, give your customer something that will sweeten the deal and make upgrading irresistible.
9. Implement an automated upselling solution
One of the best ways to improve your SaaS upsell strategy is to implement an automated solution like Xorro-RMS.
Automated upselling takes the guesswork out of the equation by using data and analytics to recommend the best next purchase for each customer based on their specific behavior and needs.
Not only does this make it easier for customers to find the products and services they need, but it also boosts conversion rates and helps increase customer lifetime value. If you’re not already using an automated solution, now is the time to consider doing so.
10. Follow up
Finally, don’t forget to follow up with your customers after they’ve made an upgrade. Send them a thank-you email and make sure to check in on their progress to ensure they’re getting the most out of their new purchase.
Not only will this show them that you care about their success, but it will also help build a stronger bond between you and your customer—which could lead to more upsells down the line.
Final Thoughts
If you’re looking to increase your SaaS company’s profits, understanding and utilizing upsell metrics is a great place to start.
By tracking the lifetime value of a customer and calculating your customer churn rate, you can get a clear picture of where your business currently stands. From there, it’s all about making strategic changes to improve those numbers.
And finally, don’t forget to test everything before fully implementing any new changes. Keep these tips in mind and you’ll be well on your way to increasing your SaaS company’s bottom line. For more tips on growing your SaaS business, be sure to check out our blog.
