Cross-Sell by the Numbers
Cross-Sell by the Numbers
There are two ways for a company to grow revenue: add more customers or sell more to the ones you have. Both are important and both rely on numbers, but in different ways.
Customer acquisition is expensive, necessary, and hard. The numbers play here is volume. The more prospects you stuff into your pipeline, the more customers you win. The good news is that the process is well understood. Marketing automation and CRM companies abound, ready to give you a technology assist.
Selling more to your existing customers is a different numbers story, a two-sided story. Upsell, selling your customers a pricier version of what they've already purchased, maintains your revenue stream. Cross-sell, capturing sales of products not previously purchased, is the best way to grow your revenue. However successful cross-sell requires knowledge of which products are of interest to each customer, and that's where numbers come into play again.
Why cross-sell is important
Cross-sell is so important because it expands the set of products from which a customer is purchasing. Not only does that bring in fresh money, but the broader a customer buys from the categories of products you are selling, the deeper is their attachment to your business, translating to better retention numbers and increased customer loyalty.
But cross-sell is hard to do, harder than upsell and harder than acquisition. Most companies don't have a clue how to do it right and so fall back on what they do know: upsell and acquisition. Buy a pair of shoes today and they'll offer you another tomorrow.
Too few companies look at the distribution of revenue between new and existing customers. If they did, they'd quickly see that for most companies, especially stable ones, the bulk of their revenue comes from existing customers. Yet how they spend their marketing budget rarely reflects this distribution, even allowing for the well-known truism that it costs more to acquire a new customer than to make a sale to an existing customer. I think this out-of-balance spending is because cross-sell response rates are so low that companies put their marketing budget into what they know how to do: customer acquisition.
Why cross-sell is hard
Typical response rates for cross-sell campaigns are abysmally low. This complicates the direct marketing media mix because, unless average order value is high, campaigns are unprofitable and unsustainable. Some companies will suffer losses in the cause of expanding market share, but generally not for long.
Fortunately, those low response rates are not a terminal disease. They're a consequence of not understanding how to run a cross-sell campaign. Successful cross-sell requires having data on what products not yet purchased are of interest to the customer. You can't guess. You can't simply push the products you want to sell. You need to know, at the individual customer level, what products the customer has some propensity to buy. Here's where numbers come into play again.
Most customer analytics [my definition: extracting insights from customer behavior data] don't deliver account-level information. Forget about using RFM (recency/frequency/monetary value). There's no product data in an RFM score, so there's no way to get a customer's propensity to purchase a particular product from the score. Segmentation schemes based on demographics don't work either; generalizations for a group of customers often break down at the individual customer level.
If you do get your modeling and predictions working at the individual customer account level, cross-sell campaigns based on these predictions can be extremely successful. We have seen companies consistently achieving greater than 10% response rates for pure cross-sell campaigns. The hard work pays off. In one small example, Footsmart.com reported a 19% increase in average order value when a cross-sell product was purchased.
The role of direct marketing for cross-sell
Successful cross-sell at scale won't work without direct marketing. If doing it right requires individualized offers, then a way to deliver those offers at scale is also necessary, and that's direct marketing. Using variable data publishing (VDP)—both print and email—marketers can put individualized offers in front of their targeted customers. Digitally printed postcards are the medium of choice on the print side. Many email service providers (ESPs) now support variable content, as well.
Individualized offers mean much more than simply using “Dear Mary” or “Dear Bob” in the salutation. Images of the specific products being pitched to the customer are important. That means managing your digital assets at scale, so the right images are loaded into the print head as the postcard goes under it, or added to the email template as it moves into the email system. Printers and ESPs have learned how to do this.
When all the pieces come together—customer analytics, variable data publishing, and direct marketing—cross-sell becomes a powerful revenue generator and loyalty machine.