We're all familiar with upselling and cross-selling. The downsell is where someone has declined your product or service offer (sometimes by simply clicking the close button on your web page) and you offer them an alternative product at a lower price (which you should ALWAYS do).
The advantage of a downsell is that even if a customer doesn't buy the product you'd ideally like them to buy, they're at least buying something. That means you get some return for your sales effort. And since they're now a customer they will hopefully have a good experience with you and be much more likely to buy higher priced items in the future.
The problem with downsells is twofold.
- First, they can be annoying. If you've pondered over a purchase and decided not to buy, it can be rather annoying to be held up and made another offer. And it might even seem desperate.
- Secondly, they can encourage bad buying behavior in the future. If a customer comes to believe they will be made a "better offer" simply by saying no to the original offer, then they will always say no.
- In fact, I hate to say it, but I ALWAYS refuse to purchase online the first time I visit ANY site. I've discovered that in 90% of all cases, the moment I attempt to click off the page, I receive a better offer. If I don't, I can always go back top the original offer and purchase it then.
To counter the annoyance issue you need to make the downsell relatively pain free. Some marketers might argue that if you're going to lose a customer anyway, who cares about whether you annoy them. But in reality, they may still be potential customers in the future. They may also create bad publicity for you if they find your process for downselling annoying.
To avoid encouraging bad buying behavior, the downsell must not simply be a cheaper version of the original offer. It must be significantly different in some way which justifies the lower price… and it must also be perceived as offering value to the prospect.
For example, a common offer in internet marketing is a free DVD containing training material. A downsell could be a cheaper, downloadable version with no physical DVD.
Or it could be for less advanced training material that may be a better fit for the potential customer. A good way to decide what the downsell should be is to survey customers to find out why they didn't buy your original offer. Ask them what their main objections were. Was it price? Was the offer too simple? Or too complex? Are they actually more interested in a different area? Once you know the main objection you can offer a downsell which addresses it.
Downselling applied to "Professional Services"
In professional services such as a doctor, lawyer, accountant or consulting, we have the advantage of selling face to face - so there shouldn't really be a mismatch between what the client is looking for and what we're offering.
But no one is perfect. Sometimes we offer a service that's more than the client was looking for. Sometimes it's just not quite focused in the right area. Sometimes they realize they just don't have the money to afford the service we're offering. And sometimes they're just not quite convinced we're right for them - they haven't seen us in action yet. In these cases a downsell can sometimes help.
For example, if you've been discussing a consulting project with a client, and they decide not to proceed at this time - perhaps a downsell to a training course in the same area for some of their team would get them to agree. After doing a brilliant job with the training course, the consulting project may get put back on the agenda.
Perhaps you've proposed a major lead-time reduction program across all the client's major factories - and it felt like too much to them. You might be able to downsell to a pilot program in just one factory to get started.
When to Downsell
A downsell is most appropriate when you realize a client is not going to buy what you're currently offering. Don't introduce it too early - it may be you just need to work through some objections to confirm the original sale.
But if you know a client is not buying, then a downsell can work. It's best to visibly rewind the discussions. "John, it sounds like what I'm proposing doesn't fit well with what you're looking for. Do you mind if we backtrack a little and go back to some of the things you were saying about the problems you were having with your lead times?" Then rework the problem and solution and introduce the downsell.
A downsell can also be introduced later. For example: if you ran a campaign to sell a 10 day analysis project to a qualified list of companies, try contacting the ones who turned you down one week later and offer them a half day workshop you're running on the subject. It could be they were hoping to work with you - but just weren't yet convinced enough to justify the full 10 day project. A half day workshop is much easier to buy - and may give them the confidence to hire you for the big project… especially once they experience your talents and expertise first hand.
In this case you must be careful and have a logical reason why you're proposing something new which you didn't initially mention in your original proposal.
For example, "John, we've had a number of clients express an interest in a half-day workshop on lead time reduction. I know you felt it wasn't the right time to start up the analysis work together - but would you like to attend the workshop to get a taste of the information?"
Creating downsells like this can reopen the dialogue with a client who may not have been ready to buy - but who may have been close. Certainly closer to buying than a completely unqualified lead that you might be working on instead.
Know Your Margins
Consider downselling once you know your true margins. In this situation, I always look at my gross margin. Gross margin only considers the cost of goods (what you have to pay to produce the product or service and deliver it) and any sales commissions that must be paid on the sale. It does NOT account for overhead or miscellaneous expenses, since those are typically already covered by the initial sale.
Think of a downsell as "found money." Here's an example. I had a client who helped prospects author their first book. He guided them in writing it, publishing it and marketing it. He sold this package of services for $5,000. He had an 80% margin, meaning that it cost him just $1,000 in hard costs to deliver this service. That leaves him with $4,000 in gross profit.
So what would happen if for every 5 prospects who express an interest in his service, he manages to close only one of them? He obviously makes $4,000. But what if he could downsell the remaining four prospects to a slightly smaller program, perhaps one where they would work with one of his coaches instead of with him personally?
They could acquire that program for half price… $2,500. And perhaps he could finance that over three months, or six months, or possibly one year. If three of them bought that program, and it still cost him the same $1,000 to deliver it, he just made an additional $4,500 with NO additional work or effort on his part.
NEVER Bastardize Your Pricing
Be careful to never give the impression you're discounting your price or service just to close a sale. Like it or not, word will spread like wildfire that you will cave on your price at the first sign of resistance.
In our example above, let's say our client does NOT have a fallback program that can be offered at a lower price point.
Consider using what I refer to as a "Scholarship" or "Hardship" Program.
This client could tell each prospect that they sound serious about investing their time, effort and energy into writing and publishing their first book, but they're experiencing some financial challenges right now due to their specific situation. They could go on to explain that they have set up a "Hardship" Program where up to three participants are granted a special pricing waiver each month… and that to date, they have only used one of these waivers so far that month.
They could then set specific terms and conditions for this prospect to agree to (perhaps document their success, provide a testimonial, send three referrals within six months, etc) and if everything sounds acceptable, they would be granted the second waiver and allowed to receive the full service program for a 50% discount.
This maintains the integrity of the original program price, and yet provides a logical reason for your willingness to discount. It also limits the number of discounts you need to account for every month if others find out about it and inquire further. In short, it keeps you in total control of your pricing.
As long as you have the margins to more than cover the discount, then this becomes additional profit to your business. In this example, the profit would be an additional $1,500 for each Hardship Program awarded, and if you granted three of them every month, that's an additional $54,000 in annual profit that would have otherwise been lost.
Every smart business owner will always have a series of downsells ready to use, and the specific times and conditions identified when it's best to offer them. Just be sure you're not downselling for pure profit only. The downsell MUST still meet the needs of the prospect, or you risk losing your reputation and integrity.