For SaaS companies, upselling new and premium features to existing customers is an excellent growth strategy. Research shows that SaaS businesses see conversion rates between 3% and 10% when onboarding new users to a free trial of their solution.
However, when freemium users are encouraged to upgrade to paid, premium levels, the conversion rate jumps to 8%-20%. This clearly shows that upsell opportunities are what SaaS companies should focus their efforts on for long-term revenue growth.
In this article, we’ll take you through some of the best practices and examples of upselling in SaaS companies.
TL;DR
- SaaS upselling is the strategy of offering an upgraded version of the same product—often a paid version or a more expensive version—to your current customers. It allows you to increase the revenue per customer by offering them better functionality on a product that they already like and use on a regular basis.
- To reap the maximum benefits from your upselling techniques, understand the user’s needs and pain points along with gaps in your current offering, segment your users based on which part of the user journey they are in. Then, create customized upselling prompts that can be directed at each segment.
- A great opportunity to create a recurring revenue stream through upselling is to offer an embedded payment processing feature in your product. It’s an excellent way to make your service a one-stop solution, increase customer trust, streamline payment processes, and gather better customer data—all while earning revenue from processing fees.
SaaS Upselling: The Basics
SaaS upselling is the strategy of offering an upgraded version of the same product—often a paid version or a more expensive version—to your current customers.
Cross-selling is another strategy that SaaS companies use to offer complimentary products or add-ons to customers who are already using a particular product.
For a company offering SaaS products, the customer lifetime value (LTV) is one of the most important metrics to track. LTV is the revenue a company expects from a customer for as long as they remain with the company. SaaS upselling allows you to increase the revenue per customer by offering them better functionality on a product that they already like and use on a regular basis.
This increased LTV can be used to offset churn or the revenue lost when customers downgrade or cancel their subscriptions. Increased LTV also allows you to put more money into acquiring new customers and absorb some of your company’s customer acquisition cost (CAC).
Understanding Customer Needs and Pain Points
Before you start upselling to your customers, you need to know if they actually need a better version of your product. It also helps to know where your current product is lacking, so you can build these features for a paid (or higher-tier) version of your product to entice customers into upgrading.
Understanding the customer’s pain points and needs will help you build valuable upgrades that they will be happy to pay for. Obviously, this will boost their confidence in your SaaS company and encourage customer retention and loyalty.
Analyze customer behavior
Upselling works best when your efforts are directed at your customers at the right time. For this, you need to track your customer’s interactions and behavior with the current version of your products.
Use analytics tools to identify which features are the most and least used by customers. This can help you further enhance the most used features and correct or improve the least used ones and offer these upgrades as part of the more expensive version of your product.
Another way to better understand what a customer wants is to set up a welcome form when they first sign up. This should include some questions on what they seek in your SaaS product. Focus on the most popular features in the next version of your product to make your upselling efforts more successful.
Identifying gaps in the existing product
Revenue churn can be a bummer but you can turn it into a learning opportunity. Send email surveys or create feedback pop-ups when clients cancel their subscriptions to ask them why they stopped using your product.
You should also track the online and social media reviews that customers are posting. This will help you understand the negative aspects and missing features of your product so you can improve it and then upsell it.
Understandably, automation is all the rage these days, but it pays to have your sales team check in with customers and talk to them to identify and understand the issues they are facing with your software.
Also, having dedicated customer success managers reach out to them regularly gives the impression that your company truly cares about the customer’s experience. Further, those who are hesitant to email their issues or leave negative feedback can be encouraged to divulge their problems and improvement ideas about your product.
Examples of Upselling in SaaS
Let’s take a look at some examples of successful SaaS upselling from leading brands.
Spotify
When it comes to upselling SaaS, there is no better example than Spotify. As of 2023, the music streaming service boasts 517.69 million users worldwide, of which about 44% (or about 229 million users) are premium users. In fact, their paid subscriber numbers increased by over 25% from last year.
There is no doubt that their upselling strategies work. Instead of waiting for a listener to look up their paid version, Spotify sends regular reminders to its free users, nudging them towards the paid version while highlighting the benefits of upgrading.
For example, if a free user skips more than six songs in an hour, a pop-up appears informing the user that the premium version has better features. Similarly, Spotify regularly plays ads reminding listeners that the premium version is ad-free.
Shopify and Wix
Both these website-building services offer payment processing features in their paid or more expensive versions. By offering payment processing, you can add to your profits through processing fees and can offer better customer support by controlling the payment processing module rather than relying on a third-party payment processor.
By integrating payment processing features into your product and by offering it to customers, you are offering more value by giving them an end-to-end SaaS solution. Your customers won’t have to look for other billing service providers and you can customize your solutions for your customers’ subscriber bases and their subscription models.
By upselling payment processing on your SaaS solution, you can offer payment automation, analytics, and other such services to your users.
BuzzSumo
BuzzSumo is a company that sells a content marketing tool of the same name to its customers. They offer various payment plans for accessing different features of the tool and they also offer a 30-day trial period.
Consider this. 99.9% of people evaluate online reviews before they shop online. Also, 49% of people trust customer testimonials as much as recommendations from family and friends.
So it shouldn’t come as a surprise that BuzzSumo has dedicated an entire section of its website to showcasing its customers’ success stories. This is a great way to entice its free trial users to move to a paid version of the tool. They also provide case studies from existing customers and along with customer testimonials, this provides excellent social proof for the brand.
Creating a Compelling Value Proposition
To motivate your customers to shell out more money on your SaaS product, you need to show them the benefits that they will be getting from the upgrade. To that end, highlight the added advantages in your banner ads, emails, social media posts, pop-ups, etc. Clearly state the new or added features an upgrade has and how each of them can help your customer’s business.
Payment processing
One feature that is often offered as a great add-on is a payment processing module. When upselling SaaS for a built-in payment processing feature, highlight how this eliminates the need for your customers to engage and pay for a third-party payment processor.
Plus, it makes your product a one-stop solution for your customer as they can process payments and get reports on the same platform. This improves user experience by making their payment acceptance process smooth and seamless.
BigTime, a professional services software, began offering payment processing to their customers with Stax Connect’s integration. It can be challenging to understand payments if you’ve never done it before, but ISV payment partners like Stax guide customers every step of the way.
Credit card surcharging
In addition to upselling payment processing as part of your SaaS company’s offerings, another valuable feature to consider is surcharging.
Surcharging allows your sub-merchants to pass on the cost of credit card processing fees to the customer, thereby reducing their own expenses. By incorporating surcharging into your SaaS product, you can offer your customers a unique advantage that can significantly impact their bottom line.
When promoting surcharging as an upsell, it’s essential to emphasize the potential cost savings for your customers. Many businesses struggle with the high fees associated with credit card transactions, which can eat into their profits. By offering surcharging as a feature, you enable your customers to recoup these expenses and offset the costs associated with payment processing.
Highlight how surcharging can provide a competitive edge by allowing businesses to offer more competitive pricing or allocate the saved funds to other areas of their operations. Additionally, emphasize the transparency of the surcharging process and the fact that customers will only pay the exact processing fees incurred during the transaction. This can foster trust and demonstrate your commitment to providing fair and honest pricing options.
Tailoring Upsell Offers to Different Customer Segments
To reap the maximum benefits from your upselling techniques, focus on the following strategies.
1. Segment customers
You can’t just bombard your customers with random content related to upselling in the hope that something will stick. This is a complete waste of money and resources.
Instead, customize your upselling efforts by identifying what kind of products a customer wants and when they want them. By analyzing user journeys, categorize your customer base based on which part of the journey they are in. Then, create upselling content that can be directed at each segment.
For example, customers who have just signed up for your service will be in one segment and customers who have subscribed for more than a year will be in another. Segmentation can also be done based on information obtained from welcome forms, the pricing plan they have signed up for, usage patterns, geographical location, etc.
2. Develop an upsell strategy for each segment
Once you have your segments, you need to create customized upselling prompts for maximum returns.
Let’s assume that one segment consists of customers who have used a CRM tool for at least a year and are projected to surpass their limit of 1000 onboarded customers in the next three to four months. This would be the right time to start reminding them that they are about to use up their quota and that they can increase their user limit by upgrading their plan.
Another example would be free-trial users whose trial period is about to end. You can highlight the features that were most used by the segment and how they can continue benefiting from your tool by moving to the premium version.
Pricing Strategies for Upselling
Let us now take a look at some pricing strategies you may use for upselling your services.
Tiered pricing plans
Segmentation helps you see that not all customers have the same needs. Some may want every feature your solution has to offer, while others may want only one or two additional features apart from the basic version.
Creating at least three or four different pricing tiers with more features being added as the price increases allows you to capture a wider customer base. This also gives existing users the chance to dip their toes into a more complex version of your software, without having to make a huge financial commitment.
Bundled features
In your research, if you see that a certain product from another company is often used in conjunction with yours, you could integrate it into yours and offer it to customers at a competitive price.
This works best when you don’t have the resources to build a similar feature into your product. Also, as customers are well-versed with this third-party product, they may be more inclined to continue using it rather than a newly-built feature in your product.
Providing Seamless Onboarding and Support
Once the customer has decided to upgrade, you should provide a smooth process for them to subscribe to the upgraded version of your tool.
Create a self-service system for upgrades
Your upsell prompt (such as a banner ad) should have an option that customers can click on to navigate to the payment portal where they can get complete information about the upgrade and make the necessary payment. Take a look at how Loom does it.
Offer clear documentation
Onboarding users to your upgraded platform—especially if it’s a self-service system— requires you to make the process as simple as possible. The next most important aspect is to provide them with as much information as possible on how to complete the onboarding process. Clear step-by-step documentation will ensure that customers don’t abandon the process mid-way and downgrade to the previous version of your product.
Provide excellent customer service
Excellent customer support is essential for building trust with customers regardless of the activity your business is undertaking—customer acquisition, upselling, post-sales support, etc. Even if your onboarding is self-service driven and has extensive documentation, there should be a dedicated customer service team to answer queries over emails, calls, and messages, help with troubleshooting, and provide guidance when needed.
Pro Tip: Upselling Payment Processing
A great opportunity to create a recurring revenue stream through upselling is to offer an embedded payment processing feature in your product.
Processing, managing, tracking, and analyzing payments and payment information can be extremely complicated for businesses. SaaS providers are realizing that facilitating payments for their users is an excellent way to make their service a one-stop solution, increase customer trust, streamline payment processes, and gather better customer data—all while earning revenue from processing fees.
However, building a payment processing component in your software may be beyond your scope or expertise. In such a situation, you can integrate your product with a solution like Stax Connect that helps you set up a complete payments ecosystem in as little as a month (and for a small fraction of the cost and resources you would need to invest otherwise).
By integrating payments into your software, you can benefit from increased earnings, greater loyalty and retention, a more competitive edge in your market, a better value proposition, and even expand to new markets. Contact us today to learn how Stax Connect can help you achieve all this and more.
