The Importance Of Up Selling And Cross Selling To Increase Margins

By: Jonathan Farrington
Submitted: 2007-01-17 12:30:29
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To increase the revenue and margins of an order by selling products and services at a higher price i.e. up-selling or by selling additional products and services i.e. cross selling, we must be able to prove to the customer that there is something in it for them. We must show them increased, i.e. added value.

Value is the worth of something when compared with something else. For example, value would be a high pay back for small outlay, also discussed in terms of ROI i.e. return on investment. Pay back is the tangible return delivered by the benefits of your products and services. The greater the pay back, the greater the value to your customer and customers certainly want value.

The Value Formula:

The formula for calculating value is the benefit minus the cost of achieving or acquiring the benefit i.e. value + benefit - cost. So, it is important that we use rigorous questioning techniques to uncover as many needs as possible, for which we can offer, benefit oriented solutions. We need to be able to explain and sell benefits. The more needs we can uncover, the more benefits we can deliver, the more benefits the greater the pay back, the greater the pay back the higher the value, the higher the value, the better the chance to up sell and cross sell.

Proving Value:

Using the funnel questioning technique will uncover needs, if they are there to be uncovered. However, it is one thing to uncover the need it is another thing to prove that there is adequate pay back and value in fulfilling the needs.

Having uncovered the needs we must probe and find out as much as we can about those needs and the implications to the customer if they are not met or fulfilled. We do this by asking past, present and future questions i.e. “How did you use to do this?” (Past), “How do you do this now?” (Present) and “How do you plan to do it?” (Future).

What we are trying to establish is the difference between what the customer used to do and how he does it now. If we can establish this then the comparison between what they are presently doing and what they may be able to do based on our solution, will be easier to grasp. This is important, because the difference between them doing something and not doing it is the “value gap”. We need to find value gaps that we can attach a price to, so that we can justify the benefit in terms of added value.

Let’s take an example:-

Your support customer used to have a manual stock and inventory system. Using your database for an automated system has enabled them to increase shipments by 20% per day. With the shipments of goods totalling ?10,000 per day, the value gap i.e. system or no system, is ?2000 per day. If the system is down it would cost ?200 to ?400 in lost or delayed shipments per hour. Staying as they are or going for a support agreement that would reduce down time is the value gap opportunity. That gap is worth ?200 to ?400 per hour.

Value Added Arguments:

You should always be looking for opportunities to offer more features that will be of benefit by asking the customer to tell you areas in which they would like to see greater support or additional services. If you say “Mr Smith we would like you to upgrade to our gold support agreement, you will receive earlier notification of software upgrades” the usual response will be, we don’t need them. Far better, using reasoning and questions to manoeuvre the customer into a position where they ask or enquire about additional services, explain to you what the possible outcome would be if they did not have those additional services and then you present a value added argument, to fill the gap.

Summary:

The best product, at the best price does not always win the order; we have all been outsold by a competitive salesperson probably offering less of a solution and sometimes even at a higher price. By selling benefits, not telling about features, the prospect will understand the pay off that your solution will deliver. Do not leave them to work it out for themselves, they might not bother!

If you can identify the need for more services and explain, using benefits, how you can meet those needs, it will be a lot easier to up sell and cross sell.

The moral right of the author, Jonathan Farrington, has been asserted. All rights reserved. This publication or any part thereof may not be reproduced or transmitted in any form or by any means electronic or mechanical including photocopying, recording, storage in an information retrieval system or otherwise, unless this notification of copyright is retained.

Jonathan Farrington is the Managing Partner of The jfa Group jf-assocs.

Since forming jfa in 1995 he has authored in excess of three hundred skills development programmes, including the Strategic Workshops series, Channel Programme, P4 Programme and the Vanguard suite In addition he has designed a range of unique and innovative process tools – Optimus+ and ASP Profile and written extensively on organisational and sales team development. To find out more about the author visit:http://www.jonathanfarrington.com Or follow the link to source a jfa solution

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