I think it would be hard to overemphasize the importance of upgrades and upsells in SaaS product marketing. In an industry where free trials, freemium versions, bargain basement subscription prices and simply hoping to recover customer acquisition cost with first year revenue are the norm, few things are sweeter than a customer that actually wants to spend MORE money with you. Upgrades and upsells can lead to orders of magnitude difference in SaaS financial metrics. If you can acquire customers at $100/mo and rapidly upgrade them to $1,000/mo, then you may be able turn a profit in one year instead of ten years. And. if those $1,000/mo customers have a lifetime value of $100,000 instead of $10,000, then you may also turn a $50million SaaS company valuation into a $500million SaaS company valuation. ‘Nuff said.
Hunting is not just for acquiring new customers.
If an existing SaaS customer has a value gap
that can be closed by an upgrade or upsell,
then you should hunt it down and sell it.
Upgrade vs. Upsell in SaaS
Although the terms upsell and upgrade are often used interchangeable, I personally use them to distinguish between two very specific SaaS product marketing scenarios. For the purposes of this discussion, I will use the following definitions:
- Upgrade : Higher revenue from increased usage of current SaaS product capabilities.
- Upsell : Higher revenue from new SaaS product capabilities.
The reason for my distinction is that the buying dynamic is very different for the two scenarios. Upgrade potential of a SaaS product depends on the customer’s need to increase consumption of a known solution to a known problem, and deepens commitment to a particular capability. Whereas upsell potential of a SaaS product depends on the customer’s need to find new solutions to new problems, and widens your SaaS product footprint. This is not to say that upgrades and upsells are completely independent, because the need for increased usage can be highly correlated to the need for new capabilities as a growing customer’s business often entails greater volume as well as greater complexity.
Now that we’ve got the housekeeping out of the way, here are 8 SaaS product marketing tips to help your maximize the potential of upsells and upgrades in your SaaS business.
SaaS Product Marketing Tip #1 | Measure Value, Not Use
When SaaS product marketers think of upgrades and upsells, their minds immediately turn to pricing and packaging. Pricing and packaging are important, but you should always keep in mind that they are just a means to an end: purchase. The most important principle to follow in designing your SaaS product offering is to align pricing and packaging with customer value, or in B2B sales lingo “customer pain,” because the more a customer values a particular capability of your SaaS product, the more a customer will pay for it. In order to price what the market will bear, you must package your SaaS product into value bundles and price them using the measures that most closely correlate to customer value. You can use features, users, usage, performance, or any measure you like to price and package your SaaS product into bundles, but never forget that these measures serve as surrogates for customer value. A hundred bucks might buy you one feature or one hundred, but if that bundle of features doesn’t equate to value, your customers won’t pay it, or worse they might pay for it and still feel cheated or manipulated in the process.
SaaS Product Marketing Tip #2 | Bundle Purchase Scenarios, Not Features
While customer value is the proper measure of your SaaS product bundles, it won’t tell you where to draw the pricing and packaging lines between your subscription plans. Read more »