Thank you to our friends at PCR for this guest post!
There is no single secret to increasing profitability, average order value, and customer lifetime value over the long run: it requires leveraging a variety of departmental optimizations, personalized marketing, and data-driven merchandising tactics.
On the merchandising side, however, it’s fairly simple to start testing and implementing strategies that will pay off. Namely, we recommend that every merchant offers cross-sells and upsells that customers will find genuinely valuable—and will help grow your brand.
What are cross-selling and upselling?
Cross-Selling and upselling are tactics to, most directly, increase the average value of an order.
- Cross-Selling offers customers another product(s) along with their initial purchase. Think: “Do you want a tie to go with your suit jacket and pants?”
- Upselling offers customers more of a product or a premium/upgraded version of a product. Think: “How about a 10-pack instead of a 5-pack?”
Both tactics are as old as time, but it’s only recently that brands are able to make better offers to their customers that are valuable and desired (as opposed to random and pushy)—we’ll get to that in a bit.
Why are cross-selling and upselling important?
Successful cross-sells and upsells increase average order value (AOV), customer lifetime value, and profitability.
On increasing AOV
Cross-sells and upsells are two common levers to increase AOV (total gross sales divided by total valid orders over a time period), as more products purchased or more of the same product purchased will increase spend per capita.
Learn 12 other ways to increase average order value.
On increasing customer lifetime value
Cross-sells and upsells are excellent tactics to increase customer lifetime value (i.e., gross margin per customer over their lifetime with your brand) when leveraged in the context of retention marketing.
By sending current customers offers via your owned channels and getting them to repurchase more, you are not only increasing the efficacy of your initial marketing spend (the cost of acquisition) but your retention marketing spend.
On increasing your profitability
You’ve spent marketing dollars to get a customer into your store. If it’s their first time there, it means you likely spent a fair amount on customer acquisition, and if they’re already a customer of yours, you acquired them and are trying to successfully retain them as customers.
Once they’re browsing, your singular goal as a brand is to get them to buy as much as possible, so that the difference between your cost per order and gross margin is as wide as possible.
Upselling and cross-selling, when done right, widen that gap and make your marketing efforts more profitable (more money spent = more gross margin = larger difference between spend and sale).
How do you implement cross-selling and upselling into your sales?
To make your cross-sells and upsells more effective you really need to understand what people are buying together (i.e., in the same cart) as well as what they are buying in sequence (i.e., what their first purchase is, and what their second purchase is). The best way to analyze and visualize this data is via product affinity charts, which clearly show the most common purchasing behavior among your customers.
In this visualization, you can hover over a product and see what tends to be bought with it. As a result, this brand could likely build an effective cross-sell by offering customers the SKU on the left with what's highlighted on the right (as well as the next handful of most common purchases with this particular product).
Buying in sequence
In this version of the product affinity visualization, we've highlighted the fact that a common first-to-second purchase is of the same product. Given that customers who buy this product originally tend to want more of it, this product would be a logical upsell opportunity. This goes double for retention marketing situations: “You've purchased this product twice already. Do you want more of it at once?”
While it may seem logical to cross-sell or bundle certain products together based on what makes sense or what you would purchase together, the only way to be sure is to dive into the data.
…of a cross-sell:
Cross-sells are never labeled as “cross-sells” on websites, of course. Often, brands will label product suggestions as “You may also like” or “Other customers purchased…”
In the image above, Under Armour is offering similar products to the one being viewed. This adds value in two ways. First, the product suggestions serve as cross-sell offers, in case a customer is looking for a similar top but slightly different look. Second, if the customer didn’t happen to like the product they were viewing, Under Armour is providing other options to keep the customer browsing (and increasing the chances they purchase).
…of an upsell:
Wandering Bear is a great example of a subscription business that tailors their items to the customer, showing a better deal for a product they were already interested in.
By including the savings for the consumer, Wandering Bear is attributing to their recurring revenue. With one click on the customers’ end, they immediately are making more money than if they had sold the standard 16 glasses: this is the simple beauty of upselling.
Bonus Bit: Bundling
Have you ever been online shopping and have a product in your cart, then you get a suggestion to look at “frequently bought together” items? If so, then you understand bundling: the combination of cross-selling and upselling
By bundling together an item we already know the customer is exploring with other products that make sense alongside the original item, it often makes a compelling offer.
Nguyen Coffee Supply, for one, offers several bundles that appeal to different customer interests.
Via their Vietnamese Brew Kit (on the left), they cater to the consumers who would be interested in buying the coffee and who want an authentic preparation of Vietnamese coffee. This is their most expensive bundle, but it provides a compelling offer, as someone who is interested in making traditional Vietnamese coffee may want an all-in-one purchase.
Colourpop uses bundling to both increase sales and helps customers find an all-in-one solution for their beauty needs. When planning your bundles, consider what relevant problems or needs your customers might have, and be sure to bundle in the most useful products for them!
TIP: If your store happens to be built on Shopify like Colourpop, setting up bundling or volume discounts on Shopify is made easy with the app marketplace. Be sure to check it out if you haven’t already!
Continue to monitor your customer’s needs, and actively engage with your customer's purchase behavior, and you'll be well on your way to building great cross-sells and upsells.