Up-Selling and Cross-Selling

Today we're talking about up-selling and cross-selling. They fit together into a tidy package and you'll see very shortly how this package is designed to increase the revenues and profits in your business. You'll find that this lesson is simple to understand though no less impacting in the results it should produce.

Last year my wife and I went into a car dealership to buy a car. I had my eye on this simple Toyota Corolla that I would get for her—I knew it was dependable, reliable, had a great re-sell value, got great gas mileage, and wasn't at all flashy. Just an ordinary car for ordinary everyday use.

The salesman who greeted us was a grandfatherly gentleman with a pleasant demeanor. He wasn't pushy at all and we thought that we'd be happy to buy from him. It turned out that we had a common friend and that solidified the bond between us. On the way to do the paperwork, he asked if we had considered the Camry. After all, it was an upgrade, a little more room, a little more class, and when you considered the payments, no more than an extra cup of coffee per day.

After only 5 minutes of discussion, we decided to go for it. "Grandpa" then told us about the extended warranty that we might want to consider. The extra assurance. The peace of mind. It made total sense. My wife was a little concerned about our children in that car. Three kids between the ages of 9 and 13 can create a whirlwind with after-school snacks, soccer practices and friends. So we ended up getting extra car mats and seat covers. The nice ones.

I think we walked out spending about $11,000 more than we had originally planned. But my wife was happy. And when Mama's happy, everybody's happy! I knew that we were being up-sold and cross-sold, but it didn't matter. It made sense. We got what was right for my wife.

Good up-selling and cross-selling works like that. It's in the best interest of your customers. It makes sense. It's natural. And everyone walks away a winner.

The philosophy behind up-selling and cross-selling is simple—your present customers trust you enough to enter into a buying relationship with you. You have already gained their trust and now you have the opportunity to present to them another level of products or services that you have created that are in their best interests.

In a nutshell, up-selling means offering a higher grade or quality or size of the item that the customer may be interested in at the point when the customer is ready to buy. We went in to buy a $15,000 car and were up-sold to a $25,000 car.

Cross-selling, on the other hand, means offering other products or services which complement the item the customer is interested in, at the point when the customer is ready to buy. We bought the extended warranty and those nice car seat covers and mats.

Up-selling and cross-selling are essential elements that can lead to immediate increases in profitability. Unfortunately, most businesses waste this valuable opportunity because they don't think of these strategies as tactics that belong in the marketing plan and should be a part of the policies and procedures of every company. They are not to be left to the casual whim of a salesperson. They must be strategically thought through and systematically incorporated so that your marketing efforts have the greatest leverage.

There are three questions you want to prepare a ready and compelling solution for. Answer these ahead of time and you will see your revenues and profits grow.

  1. What else do my clients want if they accept my initial offer?
  2. What can I offer them right now?
  3. What can I find to offer them that I myself don't have, but could obtain from another business?

If a customer chooses a particular item, can you find a compelling reason to induce them to upgrade and buy something that costs a little more (up-selling) and brings you a little more profit? If so, will your offer be in their best interests or yours? This is a key question. If you take the philosophical standpoint that "I'm here to do what is right for the customer," then you will likely begin to win more customers than you can count. However, if you're selfish and think, "I'm going to get as much money out of this customer as I can," then you will lose more long-term business than you can even begin to imagine.

Second, for each item that you sell, think of complementary items that you might offer that would make the offer more attractive. If you're ready to give compelling reasons why a customer should buy something else from you, then you have understood the concept of cross-selling. Fast food restaurants offer a soda at a "special price" for a cross-sell because the profit margin on sodas is so high.

Let's first take some time and look at specific examples where up-selling is effectively used. It's important for you to look at each situation and ask yourself, "What is it about that situation that I might be able to extract and use as a method for up-selling in my unique situation?"

Up-selling Examples

Every week I go to my chiropractor. (Playing football in high school seemed cool at the time, but have I ever paid for it over the years.) I was new in town and met Dr. Mike. Mike is truly a caring person. He wants the best for me and I could sense it. So when I brought up the fact that I needed some chiropractic help he said, "Why don't you bring in your whole family? I'll give all of you a free exam and free x-rays."

Mike was smart. I didn't see this coming but when I saw my kids' spines and the way that they were all a little bit out of alignment, then I knew they had to get the care that I had denied myself for the past 15 years. I told Dr. Mike, "I can't afford $50 a visit per person for my family of 5, twice a week." ($2,000/month if you do the math! That's a house payment!)

Mike said, "Don't worry about that. I want to help you guys. Let me think of a solution." And he did! The next time we saw him he said, "If you agree to come in for one year, I'll get you healthy. I'll just charge your family a total of $500/month."

I compared $2,000 per month to $500 per month and I knew it was a great deal. I went for it (and I'm glad I did).

Dr. Mike is smart too. He took a single patient (me) who might come a few times and pay $50 a visit, and turned it into a $6,000 sale. He'll probably make a lot more.

If you're in a service-based (or even a product-based) repeat business, then you can follow this model.

You get the point. You can often up-sell to a greater package with a higher sale value that creates a win/win situation for both you and your customer. If you sell them an annual program, chances are they'll spend a little more up front and you might get a little less over the long run, but here's the key. There's no guarantee that they'll come back to you for their next service. It's better to lock them in long term.

What if you were an SEO or Internet Marketing consultant? I once started an SEO (Search Engine Optimization) consulting business. We helped people get to the first page of Google or Yahoo! in the organic search engine rankings. The core part of our business consisted of three different offerings—Silver, Gold and Platinum. Silver, of course, was the basic package, but we made it really easy for people to take the Gold package because the bonuses we threw in were as valuable as the core service itself. And because the bonuses were automatic digital delivery, it didn't "cost" us anything so our profits were higher. It was a perfect up-sell.

The beauty of the system was that the customers received a higher level of service and it was in their best interest to take the Gold package. Their whole business acquired additional tools and resources that would help them grow. We felt good when we persuaded our customer's to take the Gold package.

Cross-selling Examples

Barely a week goes by without my kids dragging me kicking and screaming to their favorite burger restaurant. From the moment I walk in I know the cross-sell is coming: "Would you like fries with that?" That question has become ingrained in their business model and is worth billions to them. So if it works in their business model, do you think it would work in yours?

Remember that cross-selling is the process of selling complementary goods or services that are related to the original product or service that the customer wanted to buy.

For example, my wife goes to her favorite hair salon that, although it's not overly classy, gives her great service. She always goes in for a "cut and color" but normally comes out with her favorite $30 shampoo, $25 conditioner, and an excuse why I should go to that salon as well—excuses that her stylist gives her. I'm sure if she were in a higher end salon she would have taken the pedicure and manicure at the same time. These are other examples of great cross-selling.

Use Proper Timing

The best time to ask your up-sell / cross-sell question is AFTER the customer has committed to the initial purchase, but just before they pay for their purchase. Once they commit they're instantly in a purchase mindset. But after they pay for their purchase, they have mentally closed the transaction.

You also want to avoid giving discounts on products or services they would otherwise have bought. One way to avoid this situation is to ask them if they need anything else BEFORE you complete the transaction. If they say no, then ANY additional sales you make amount to additional profit you would have otherwise missed out on. NOW is the time to mention the up-sell and cross-sell items on your special list.

If someone buys a dozen doughnuts, and says they have everything they need, now is the perfect time to remind them how their kids LOVE doughnut holes and you have a special this week for 12 holes for a dollar. 30% to 50% of buyers will opt for the additional purchase.

Create a Script

Scripts will typically be a question that your staff will ask… or it will appear on a sign right by the register. If you want the flexibility of asking the up-sell/cross-sell question only if the customer does not purchase the item automatically, then you must deliver your script verbally as McDonald's does when they say "Do you want fries or a Coke with that." This will either take place at the physical point of purchase or when the purchase takes place over the phone.

If you want to stimulate the purchase of high margin products or services and want to provide the offer to every customer, then you want to post a sign near the cash register or other appropriate location. However, you should also ask the question at the time of purchase if the customer doesn't purchase the item. This simple step will add 25% or more to the conversion rate.

Sample scripts…

"By the way, since you purchased a dozen doughnuts today, you get a second dozen for half price."

"I know you feel the dress you really liked was too expensive. If I could get it for you for just another $125, would you like to have it instead?"

"Would you like 2 additional pairs of pants to go with your new suit?"

"Do you have a will in place yet for protecting your family? As part of my tax preparation and planning service I also provide estate planning. If you care to have this done while I'm completing your taxes I can save you $100."

"Without a "basic will" your property will go to probate and your kids may end up paying the price. I could also provide you with a living trust. This will save you an additional $125,000 in taxes that your family will otherwise be forced to pay."

The Financial Impact

Up-selling and cross-selling are not exciting strategies but you will find that a commitment to consistent up-selling and cross-selling where they become regular, systematic processes of your business will give you dramatically higher profits for very little extra work. Let's look specifically at the impact.

My teenage daughter recently wanted to buy a new swimsuit. She's 13 now (going on 18 it seems) and her current suit no longer fit her. I found some great suits at a retailer for about $40. But she wanted to keep looking around.

We finally found a store that specialized in swimsuits and the prices started at about $50. The miracle of the experience was that we actually found a nice one that fit for that price. At the register, the canny sales lady asked my daughter (she ignored me), "Did you see our new line of swimwear?" Of course my daughter wanted to have a look. She then found one for $72 and decided to get it. We were officially up-sold.

But the sales clerk wasn't finished. She asked my daughter, "Have you tried on these goggles? They're perfect for diving and racing." Of course, my daughter had not. That added another $20 to the bill. Now we had been cross-sold. The goggles were a related and complementary item to the original sale.

I paid $92 before tax instead of $50. My daughter got the suit she wanted. The clerk made the store more money … and everyone's happy (I don't really count in this scenario).

Now let's examine the math. Let's say for the sake of easy math that the gross profit margin on every item in the store was 40%.

(Many businesses will use their "Net Profit" figure to determine the profit impact of any added revenue that we might help them find. Net Profit is determined after ALL costs are taken out. However, adding additional sales, which do not require any added fixed costs (rent, fixed salaries, utilities, etc), will increase profits by the gross margin -- the revenue minus any direct cost of adding that revenue (sales commissions, cost to make and deliver item, credit card fees, etc.

As an example, the swimsuit store might earn $100,000 profit on $1M in revenue, after rent, advertising, labor, lease payments, managerial salaries, delivery of service, etc. That's a 10% Net Profit Margin. However, if we added $20,000 in new swimsuit sales and this required no increase in fixed or indirect cost, then the added profit, assuming 40% gross profit, is $8,000. Compare this to just saying your net profit margin is 10% or $2,000.

We're trying to find out the actual realistic impact on the swimsuit store. Therefore, if they were to add an extra $1,000 to their revenues from several customers in the first year, the percent that they would actually be able to bank is their gross profit.)

The first swimsuit that I was going to choose cost $50. With a 40% gross profit margin, the store would have made an additional $20. The second swimsuit that we actually bought cost $72. The profit on that was $28.80. This is an increase of 44%. Then we added $20 goggles which added another $8 gross profit. So the total gross profit was $36.80 vs. the original $20. That's an 84% profit increase.

Granted, not every mother or father is going to give in to their daughter's fancies so easily. But what if the clerk followed a policy that required them to attempt to up-sell and cross-sell every customer that was about to buy something? And what if only 1 in 3 customers (the national average by the way) actually agreed to buy something? What would the overall impact be?

Let's say the swimsuit store sells 500 suits a month for an average of $50 each. That's $25,000/month in revenue. With a net profit margin of 10%, they would bank $2,500. Now, what if 1 in 3 were up-sold and cross-sold? 167 (one in three) people would spend $92 instead of $50 or $42 more each. That's an additional $7,014 of revenue, of which 40% or $2,806 is gross profit. So the store went from $2,500 profits in the bank to $5,306 in the bank. That's an increase of 112%. They more than doubled their profits.

Now… what did this cost the store? Nothing! It's a policy at this store that every store clerk has to ask those two additional questions… and they're trained exactly how to do it as well! It's also a great idea to compensate the clerks for every sell they make using those questions. Watch how they quickly discover new and better ways to continue to up-sell and cross-sell with greater efficiency. Plus, compensating them dramatically decreases turn-over in personnel.

Implementation

The hardest part for any business owner is to implement what they know to be right. If you're working with your staff, you have to make it a policy to up-sell and cross-sell… and your staff has to understand the impact on your business and on their livelihood if they actually do what you ask them to do.

Recommendation: first decide what up-sells and cross-sells you want to offer… then write them down. (Look for items with high profit margins if possible). Next, find your best-performing sales person and have them test the idea for a few days. Take good notes and track results. Make sure they ask on every possible occasion.

See what difference it makes on your business. If it's positive, then make it a policy for all staff members to follow. Tell your staff what the policy is, what they should expect (as a reward) if they follow the policy and what will happen (as a consequence) if they don't follow the policy. Don't allow their laziness to rob you of your profits.

Keep refining your up-selling and cross-selling strategies until you're satisfied that you have served the customer at the highest level and you have ethically captured every penny of profit from them. When you have achieved the success you have been looking for, then please do us a favor and tell us of your success story. Perhaps others will benefit from your successes and you will learn even more from the successes of others. This is how all of us continue to improve and grow.

Summary…

Here are the four best times for businesses to use an up-sell / cross-sell strategy:

#1 - Offer customers a greater quantity

Sweeten the deal when they purchase a greater quantity. Think in terms of McDonald's and their classic closing line… would you like that "super sized?" Most restaurants and convenience stores train their servers and clerks to offer each customer a larger size or portion for a slightly higher price.

Next time you fill up your car at the convenience store, look at the prices for their beverages. A 20 ounce cup is $.79 but the 64 ounce cup is $.99. More than 300% more beverage for only 25% more in price.

(Note: when working with restaurants, use two additional strategies when applicable. Remove the $ signs from the prices on the menu (use 20 instead of $20). The latest research confirms the typical customer spends 8% more per person when the dollar sign is removed.

Second, ask the restaurant owner to position their most expensive (and highest profit margin) meal in the top right hand corner of their menu. The average customer's eye goes there first.

#2 - Offer a complementary product or service

Make the additional item a part of the purchase. For example, a hair salon that offers a discount on supplies (if the customer doesn't ask for these items at the point of purchase).

Example: At Great Clips, their stylists ask customers as they're paying whether they need any supplies today. If they say no, they respond by saying, "We're running a special promotion today. You get to grab a discount coupon from our fishbowl and win a 10% - 50% discount on "XYZ" products, which is good for today only."

This promotion produced amazing results. 75% of their customers grabbed a coupon and 50% of them purchased supplies on the spot. This translated to 37.5% of their customers that bought something additional, and they spent an average of $12 they would not have spent originally… since they had already said they didn't need supplies today.

At a 50% margin, this equaled a $6 increase in profits. Their average customer spends $30 per visit, so they typically make $15 in profit per customer. Now when you add in the cross-sell, it increases their profits by 40%! And best of all, there is NO additional cost, time or risk to implement this strategy. (See "Fishbowl Discount Strategy" for implementation details).

#3 - Offer a related product or service

An auto repair shop could offer to change a customer's oil for a discount when they come in for a repair or to have their brakes serviced. (Other services to offer might include air conditioner recharging, changing out their transmission fluid or washing and waxing their car).

#4 - Offer a higher level product or service

Offer your customers a premium service or a superior product based on their specific needs. When appropriate, determine their needs and direct them to the highest level item that meets those needs.

NEVER use this strategy to manipulate a customer into buying something that they don't need. Instead, educate them on the proper quality item that will benefit them.

For example, a young woman comes into your store looking to buy a "power suit" for a new sales job she's just landed. After speaking with her about her new position, you discover she really needs a higher caliber of suit. You can up-sell her by simply showing her the better suits you have in stock and educating her on the advantages of purchasing it over a lesser priced suit. Some of the benefits to point out might include the powerful appearance it immediately conveys, the fact that it makes her look more professional so she will be taken more seriously and the fact that it will last twice, will remain wrinkle-free and last three times longer than a moderately priced suit.

As the salesperson prepares to collect payment, now is the perfect time to ask about adding a new pair of shoes, a matching blouse or a waist belt to complement her new suit. Or if she purchases a new shirt to go with her suit, tell her that if she buys two shirts, she gets a third shirt free.