One of my favourite techniques for increasing profit is the upsell and cross-sell which increase the average purchase value for a customer.
Where these are often talked about together I want to look at upselling on its own and in particular at the finance logic behind how to upsell profitably.
What Is An Upsell?
An upsell is when a customer intends to buy one product at a particular price point but actually buys a higher priced, better quality item.
For example in Ford cars, you may intend to buy the Fiesta GL but you actually buy the Fiesta Ghia which costs an extra £1,000 more.
A cross-sell is selling a related, complementary product to enhance the use or value of the product. In the car example, selling optional extras fitted to the car is upselling but selling insurance is a cross-sell.
The distinction can get a little blurred so go with the principle of increasing the value of the sale.
The Ethics Of Upselling
Persuading your customer to buy an upsell will increase your profit but since you want to keep the customer coming back, you need to upsell ethically and put their interests first.
Customers are looking for a solution to a problem and whilst they may have done some research and think they know the answer, you are the expert.
What the customers ask for may not be good enough for what they want so you have a choice:
- To let them buy the item they ask for even if it is not right for them - and you know who they will blame when they get disappointing results and have to buy again in a few months; or
- To take the time to find out what they want, assess it and to educate them if necessary by correcting any misconceptions and to explain the benefits of higher priced models.
Provided you are tuned in to helping the customer get what they really want, you won't be seen as a pushy salesperson and just as important, you won't feel like one.
Upsell Economics - The Financial Logic Of Upselling
The first thing to make clear is that the value you want to increase is the contribution or profit on the transaction and not just the sales value (see turnover is vanity profit is sanity).
The second is that the customer must get a good deal so the extra value they receive must be worth more than the extra price. The customer needs to see that at the time of the sale - because otherwise the decision to buy the higher priced item doesn't make sense - and continue to believe it after the sale.
An upsell is a win-win - you are happier and your customer is happier.
I am looking for a new video camera which I mainly use to film animals - my dog Gina, wildlife in the UK and most years we go on safari in Africa. Quality is important to me and in particular, I like a good zoom quality since the wildlife may not be as close as I would like.
I have also learnt that camera technology moves fast and a camera I buy now will be much inferior to a camera I could buy next year for the same money.
So I would rather spend £500 every two years than £1,000 every four years.
I go in to the camera shop and ask questions about the £500 camera (and we will assume that the shop makes 50% contribution margin). If I buy this camera, the shop will make £250 profit.
The shop owner takes the trouble to find out my thoughts and recommends a camera costing £700 (profit of £350) - i.e. he tries to upsell me to this more expensive camera.
I admire it and we do a little comparison film at 10 times zoom.
The difference is indisputable. I can see that the shop owner is right but I am reluctant to pay more than £500.
The upsell is under threat - whether the shop makes £250 profit or £350 profit hangs in the balance.
The shop owner can see that I am attracted to the £700 camera but he knows that he needs to sweeten the deal.
He has a choice of three options:
- He can stick to the choice of £500 or £700 camera and hope that I will buy the upsell
- He can offer me a deal on the upsell - a £50 discount of the price down to £650 will reduce the shop's profit from £350 to £300 but it is still more than the £250 available from the £500 camera.
- He can hold the price at £700 and offer to throw in accessories to increase the value I am getting, perhaps offering me £50 of fancy gadgets (I'm a sucker for flashing lights) and if they have a 50% margin, they will only cost £25 so the profit on the upsell is £325 (the £350 less the free accessories cost of £25)
I buy the expensive camera and go home and report that I got a great deal and the shop owner has made more profit by taking the trouble to match what I want to what he has available.
Not all upsells are this involved or involve so much money.
A restaurant has the opportunity to upsell every day by enhancing the meal by offering extras and each extra course or drink means extra profit.
The classic MacDonald's questions are "Do you want fries with that?" when you order a Big Mac and "Do you want to go large?" Purists may say that the fries are a cross-sell since it is not a bigger, more expensive burger but it is an enhancement to the meal.
I am sure that MacDonald's have tested this question and it works best for them, but often a closed question which requires a Yes or No answer can create No answers when a more imaginative question would get a better answer.
A waiter in a restaurant may ask "Would you like to see the sweet trolley?" (or another bottle of wine or offer liquers) but a better question may be:
"We have three special desserts today, death By chocolate, strawberry and champagne cream gateau or lemon meringue pie (my favourite). Which would you like?"
By phrasing the question in the right way, Yesses may increase from one in three to two in three and if there is £2 of profit in each dessert, restaurant profits are soon on the increase because of the carefully worded upsell.
What Are You Thoughts On Upselling?
Do you have a story to share on upsells, either as the seller or the buyer?
How do you feel during the process?