Where Up-Selling Goes Wrong

Up-selling can be a very good thing for software-as-a-service (SaaS) companies. It’s a winner on two counts:
  1. It boosts revenue per customer
  2. It usually lowers the cost of customer acquisition. 
According to one critical SaaS metric - Customer Lifetime Value/Cost of Customer Acquisition - up-selling is a formula for success.

But selling to existing customers isn’t always easy and there are few ways it could go wrong.

Unhappy customers

Before you can sell new services to an existing customer, they need to be happy with the old services.  That sounds obvious, but it’s easy to see how companies can get it wrong. 

Imagine a sales team that’s not connected to the support team.  In that instance, the sales person may have no idea that a customer is in the midst of a long unresolved support issue.  When the sales person calls on that account to sell add-on services, that might not go so well.

Bad timing 

Sometimes the up-sell effort is simply mistimed.  There's both a good time and a bad time to try sell new services.

I purchase services from one particular SaaS company that insists on pitching me new services every time I call in to their support people about a problem I'm having with their service.  I’ve just called with a complaint, and you want me to buy more stuff?!  Not right now, thank you.

Hidden cost

Customers don’t react well when the additional service you’re offering really ought to be part of the standard subscription fee.  If it's something that’s fundamentally necessary to make the solution function effectively, the customer rightly expects it to be included... not an add-on that they need to pay extra for.

I’ve even seen SaaS companies that charge extra for an add-on service... and then require the customer to buy it. That doesn't sound like the way you want to treat new customers.

Wrong offer

Offering to provide an add-on service to an existing customer is usually most effective if it’s targeted to their particular needs.  If the add-on is best-suited to your larger customers, for example, focus the up-sell effort on your larger customers.  Offer something else to your smaller customers.

This is one of the advantages of offering a SaaS solution.  You actually do know quite a bit about your customers and how they use the solution.   You should be able to target precisely those that might be most interested in particular add-on services.

In fact, trying to up-sell everything to everyone can backfire on you.  When you present them services that aren't appropriate for them, your customers get the impression that you really don’t know much about them.  That's not good for a long-term relationship.

3½ ways to lose customers in 2011

If you’re marketing a SaaS solution and have had enough with year-end wrap-ups, predictions for the new year, or sure-fire tips for success in 2011, here’s the antidote:

3 ½ ways to lose customers in 2011.

Ignore them

Once you’ve won a customer, consider your marketing job complete. Focus on the prospects, not the ones who are already sending in a check every month. Leave them out of the loop on product and service enhancements, and ignore their suggestions for improvements. Just remember to turn on the charm a few weeks before the end of the subscription.

A corollary to ignoring existing customers: oversell them

Pitch them on renewing and upgrading with every single interaction. That includes unresolved customer support issues. Nothing an exasperated customer wants to hear about more than a discount… if they renew their service for another 3 years.

Hide from them

If your service goes down, your communications to customers should go down as well. Keep them guessing about your system’s status, and let them rely on other uninformed customers for information. Shrug off their concerns and don’t even consider an apology.

Surprise them

Add new features and functions without warning. Better yet, remove certain features without warning. Make major changes to the user interface. These are especially effective for applications used only occasionally, such as annual performance review solutions.

OK, back to the traditional new years' self-improvement resolutions. Pardon the interruption.

Proximity to market

I've heard of CEOs delivering pizzas and Jolt Cola to software developers. I know about companies that have sent flowers to developers' families, with apologies for keeping them away from home on nights and weekends. I've even seen a company treat the entire development team to a week-long Caribbean resort vacation, all-expenses-paid.

Why this largess? Believe me, it's a lot more than just an outpouring of TLC to the folks who design, write and test code.

No, it's all about time. Specifically, time-to-market. Companies see value in prodding, cajoling and rewarding development teams for shipping product and hitting a deadline. The thinking goes that faster-to-market equates to competitive advantage.

I'm not convinced that time-to-market, and specifically first-to-market, always conveys much advantage over the long term. There are plenty of examples where the second or third vendor into a market eventually walks off with the lion's share. Think Microsoft in desktop applications or Google in search.

Proximity-to-market more important that time-to-market

Time-to-market is probably even less important for software-as-a-service (SaaS) companies. What matters more for them is proximity-to-market.

"Proximity-to-market" refers to the ability of SaaS providers to stay close to customers so as to be in a position to accurately read and analyze customer needs and to respond quickly.

The SaaS model presents providers with at least two significant proximity-to-market advantages:

1. The ability to observe customer behavior closely

A hosted SaaS solution provides the vendor an opportunity to know precisely how the customer uses it. The provider can directly observe, for example which features are being used, which are neglected, and which cause customers to review the "support" FAQs? On-premise solution vendors can try to accumulate this same information by observing behavior or through customer surveys, but it's more difficult and less accurate.

2. The ability to respond quickly

SaaS providers that follow agile development methodologies typically have the ability to respond rapidly to signals from customers. They can develop new features or fix existing ones. Moreover, they have an effective mechanism to deliver these enhancements quickly and without significant disruptions. SaaS vendors typically don't face the long development cycles and upgrade issues that confront on-premise vendors.

SaaS providers should leverage these proximity-to-market advantages. Stay in touch with customers through moderated forums or social media networks, analyze customer support requests, track usage patterns, and use whatever other means you have to observe customer behavior and sentiment. Analyze and prioritize the information, and feed it to the development team. It goes well with pizza.

Customer Service: Timing is Everything

In an ideal world, you'd all be delivering software-as-a-service (SaaS) solutions so simple to learn and easy to use that customers would require no help. And you'd be so flawlessly reliable that users would never experience any service downtime or performance flaws.

The fact is, though, most of us live in the real world, not the ideal world. And in the real world, bad stuff sometimes happens: Customers get confused, a feature doesn't work, service goes down.

How you respond to these inevitable events matters especially in a SaaS business. Success depends on existing customers renewing their subscriptions. One quick way to lose existing customers is to deliver poor customer service.

When it comes to customer service, timing is everything, or at least it's really important. Two recent experiences will help illustrate my point.

Get out in front of the problem

I use an on-line service from Carbonite to back-up my files. The process happens automatically in the background, and unless I need help restoring data (not yet, fortunately), I have no reason to contact them for support.

Apparently, though, as the company upgraded its software, some customers did have reason to call, and they experienced delays in getting through to support people.

Carbonite's CEO, David Friend, addressed the issue publicly and proactively, sending this note to all customers.

Dear Peter,

In the past couple of weeks our response time to customer inquiries has been much too long. This is because a major upgrade to our software, which includes a wide array of improvements, generated much more demand than we anticipated. With that came a surge of questions that had to be fielded by our customer support team, which in turn lengthened our response times.

As the only online backup company that provides free chat, email and phone support, the quality of the support we provide is very important to us. So if you had to wait a long time for a response from us, we’re very sorry to have let you down. As of today customer support answer times have improved greatly and will soon be back to normal.

Thank you for your business, and again, we appreciate your patience and understanding.

David Friend, CEO

Carbonite, Inc.

P.S. If your Carbonite software hasn’t yet been upgraded to version 4.0, it will be upgraded automatically soon. If you have any questions or concerns, please contact us or simply reply to this email.

I'm putting lots of trust in this company to protect my vital data and to help me restore it if I have a problem. I pay them for peace of mind. This kind of note - candid, reassuring, and proactive - bolsters my confidence in them. When it's time to re-subscribe, I'll have no reason to look elsewhere.

It's not always the right time to sell something

My web site, SaaS Marketing Strategy Advisors, is hosted by Network Solutions. I selected their service because it provided a complete package, including domain names, a web site builder, web hosting, and email addresses, plus 24-hour, 800# customer support.

With my limited HTML expertise, I usually call the customer support line at least once every month for help. I'd grade the support "barely satisfactory." Their agent usually gets me through a partial solution... and then I figure out the rest through trial & error on my own.

Though I can live with the mediocre service, at least for now, what I have an especially hard time with is the pivot into "sell mode" at the end of every single customer support call. No matter whether my problem has been completed resolved, or I'm more confused and frustrated than when I started, the agent invariably pitches, "Renew your subscription now, and I can save you money."

A bit of advice: This is not always the best time to try to sell something. Confused and frustrated customers just want to fix their web site and get on to running their business. They aren't really in the mood to pull out their credit card to re-up for another year.

I know it's in the script folks, but can you please make room for some common sense?