Upselling and cross-selling are two strategies that can help drive your business’s profits. Amazon is a perfect example. The multibillion-dollar eCommerce company was able to increase their revenue by around 35% due to their simple yet highly effective upselling and cross-selling strategies. You can see their upsell strategy at work during the checkout process and their cross-selling techniques in the “Frequently with…” and “Customers who shopped...also shopped for…” sections of the website.
If you want your business to be as successful as Amazon, you should consider amping up your upselling and cross-selling strategies. When executed properly, they can significantly increase your profit margins while providing your company with more opportunities. But first...
What are upselling and cross-selling?
Upselling is a technique that involves influencing your customers to purchase your more expensive products, usually upgraded versions of what they are planning to buy. While your main objective in upselling is to boost sales, upselling can be used to provide your customer with better options that they may not have initially considered.
Cross-selling, meanwhile, is a technique that involves selling different but complementary products to your customers on top of what they’re purchasing. A pre-existing relationship is important in pitching cross-sales. As such, in most cases, businesses only cross-sell to returning customers.
Both strategies focus on maximizing profit after a customer has indicated a desire to make a purchase. As both these strategies are similar, it can be easy to confuse them. The best way to differentiate between upselling and cross-selling is to give examples.
- Example of upselling
You’re a wholesale distributor of coffee beans and coffee machines that cater to all the coffee shops in your area. You are approached by long-time customers looking to open up another new café, and they are interested in buying several machines of a particular brand and model. Instead of selling them those machines, you sell them machines belonging to the same basic model, except one tier above, and only slightly more expensive.
- Example of cross-selling
In line with the example above, instead of selling the entrepreneurs upgraded versions of the machines, you offer them several bags of your high-quality coffee beans.
While distinct from one another, these two sales strategies are both used in different situations by companies of all sizes, from small, family-owned businesses to Fortune 500 conglomerates.
How upselling and cross-selling can help your wholesale business?
Yes, these sales strategies can have a significant impact on your profitability, but that’s far from the only thing they’re good for. Upselling and cross-selling can also help your business in various ways.
1. Build better relationships with your customers.
There are those who argue that upselling and cross-selling are unethical practices that do not take into consideration the needs of the customer. That doesn’t have to be the case, though.
Your upselling and cross-selling strategies should focus on finding ideal solutions to your customer’s problems or on adding value to their purchases. Through this, you can create a deeper and more meaningful relationships with your customers. Your customers are able to know if you are genuinely helping them or just trying to make a quick buck off them.
2. Easy way to increase revenue
If you’re a wholesale distributor, you know that generating leads that will hopefully transition into full-fledged customers is an arduous process. You need to sell not only your products, but also your brand. Your potential customers neither know nor trust you yet, so you’d risk alienating them if you tried to upsell or cross-sell your products.
With your existing customers, on the other hand, you’ve already gone through the process of convincing them to do business with you, so that challenge isn’t present. You can easily execute your upselling and cross-selling strategies with much higher chances of success.
3.Cost-effective method to attract new customers.
Upselling and cross-selling are not only easy, they’re cheaper too. Depending on the type and scale of a company, it is five to six times more costly to find new customers than it is to upsell and cross-sell to your existing ones. Methods that are used for lead generation (and customer acquisition), such as websites, email campaigns, and online ads tend to get very expensive as time passes and don’t guarantee revenue.
The probability of selling to a new customer is only between 5% and 20%, whereas the probability of selling to your existing customers is from 60 to 70%. Furthermore, your existing customers already trust you, so they’re more likely to spend more to buy your products compared to new customers who are unfamiliar with your brand.
4. Increase Customer Lifetime Value (CLTV).
CLTV is the net profit attributed to your customer over the course of your entire business relationship. You can categorize your existing customers in three ways: 1) not profitable, 2) profitable, and 3) highly profitable.
Highly profitable customers are those that drive your revenues upwards without you having to expend resources, so they have a higher CLTV than the other two types of customers.
As a business owner, you need to identify which of your customers are highly profitable so that you can focus your customer retention efforts on them. Doing so will maximize their CLTV and result in substantial long-term profits.
5. Create a better overall experience for your customers.
Upselling and cross-selling are sometimes considered dirty tactics, but they don’t have to be. Both strategies have the potential to be more than just money-making techniques. All it takes is the right approach.
Instead of selling additional or more expensive products to your customers just for the sake of increasing your profit, identify your customers’ needs so that you can better address them. This way, your recommendations can provide value, rather than burden your customers with products that aren’t relevant to them.
Whenever you upsell or cross-sell, always consider your customer’s input and make the process more consultative—not just a sales pitch. Your customers are going to feel that you truly care for them and that you want what is best for them, so they’re more likely to take you up on your offer.
Take the stated scenarios above. In the first example, you used upselling to provide a better coffee machine to your customer at just a slightly higher price point. In the second, you offered your high-quality coffee beans and helped your customer avoid the hassle of looking for a separate distributor.
How to use upselling and cross-selling to improve your business
No matter what you’re selling, as long as you upsell and cross-sell the right way, your profit margins will increase. Here are some tips on getting it right:
1.Know when to upsell and cross-sell.
It’s important that you know when a situation calls for upselling or cross-selling and when it doesn’t. The last thing your customers want is to bombarded with options for products that they don’t need.
If your customer already has their mind set on a specific product, then selling a better version of that may not be such a good idea. What you can do instead is offer other products that will benefit their original purchase.
2. Segment your customers.
As previously stated, customers can be categorized as non-profitable, profitable, and highly profitable. As a business owner, you need to segment your customers so that you can identify which ones are profitable and highly profitable. Focus your upselling and cross-selling efforts on these customers in order to maximize their CLTV and gain substantial long-term profits.
3. Make helping your customers your number one priority.
It may sound counter-intuitive, but helping your customer should be your main goal in upselling and cross-selling. In the short term, you can turn a profit by upselling your most expensive products to customers. But in the long term, you might lose your customers as they might feel cheated by your upselling techniques.
Investing time to help your customers will ensure that they have a positive experience that will stay with them long after completion of the sale. You can guarantee that they will turn to you the next time they have problems which in turn increases your customers’ CLTV.
4. Practice honesty in your dealings with customers.
Remember to always be transparent with your customers when upselling or cross-selling a product. Tell the complete truth about its advantages, drawbacks, pricing, and any other necessary information.
Your customers will appreciate the honesty and help you gain their trust. This rapport will convince them to purchase what you’re offering and also help you gain their trust, which will result in customer loyalty and more profit over time.
Make your upselling and cross-selling strategies more effective by using inventory management software to streamline your processes. Here at Sweet, we can help you do exactly that. To find out how, request a free demo today.