One of the core goals of any SaaS business is to convince customers to upgrade to the next tier of service. This goal is also one of the fundamental challenges – a large number of SaaS clients never make the upgrade.
Apart from the obvious effects on revenue, there is good reason for companies to be aiming for the upgrades: research conducted by David Skok and Pacific Crest showed that the SaaS companies who grow the fastest rely more on up-sells than their slower growing peers.
In order to understand how you can convince customers to upgrade, you should know a few things about why they usually do or don’t take up the next level…
Why Don’t Customers Upgrade?
So, what’s up with these clients who don’t ever upgrade? Assuming you’ve built a great piece of software and that your customer service is top-notch, here are some of the key reasons why they may stay exactly where they are…
“The reason that men oppose progress is not that they hate progress, but that they love inertia”– Elbert Hubbard.
This is a phenomenon that has been observed since the dawn of humankind; it’s easier to do nothing and leave things as the status quo rather than to make changes. As much as we’d like to consider technology users savvy and forward-thinking, most of us will fight that natural tendency toward inertia at some point.
When it comes to software, there will always be people who have naturally conservative tendencies when faced with making any upgrades. As pointed out by Targetprocess, these are the people who will not automatically apply any app upgrades on their phones or other pieces of hardware – they require a compelling reason to go with that upgrade and once done, will probably stick with that level for as long as possible.
They can’t see value in upgrading
This could go hand-in-hand with natural inertia, but if a customer doesn’t see the value in upgrading, unfortunately your business probably hasn’t done a good job of demonstrating that value to them.
As Kissmetrics discussed in a recent post, one of the biggest reasons that customers don’t upgrade is that they’re unaware of the other features of your product which will provide value. This means it’s up to you to ensure you’re doing what you can to communicate and demonstrate those features.
The other side of that may be that the client feels they’re getting everything they need from the tier they are on already. For example, if you allow a free subscription level, are you giving enough away to demonstrate value, but holding enough back for the paid tier that the customer will be enticed to go there?
They were a “freebie seeker” anyway
A not-so-secret secret is that there are a lot of “freebie seekers” (otherwise known as the Zombie Customer) floating around on the internet. This obviously only applies to you if your first tier is a free subscription – if it is, you can expect that some people never will upgrade.
The true freebie seeker has probably signed up for every free software trial that crosses their path and possibly has never had any intention of taking on a paid subscription. They are the ones who are always looking for the next shiny object – that magical tool that will make their life awesome.
These are also the same prospects who are likely to be first on the list for customer churn. As the freebie seeker is unlikely to be your ideal prospect, it is generally a good thing when they leave so you can focus your energy on prospects with a true need for your product…
Why Do Customers Upgrade?
In short, a customer is going to upgrade because they love your product and/or they can see how they will receive value from upgrading. Here is what that value might look like:
The upgrade provides them with a core functionality
They’ve tried out your free or cheaper version and liked the functionality it gave them, but they want to have more functions open to them. For example, Buffer limits the number of posts that can be scheduled using their free version, Piktochart limits the number of graphic templates available, Dropbox puts a limit on storage space and Stunning limits the number of paying customers for receiving alerts.
In all of these examples, the free or cheaper version is enough to demonstrate the value that the next tier can have for the customer, so the customer will understand what they’re getting in an upgrade.
The upgrade makes life more convenient for them
Good examples of this can be found in apps such as Hootsuite and Buffer which are used to schedule social media posts. You can connect a certain number of your accounts for free, but any extras require an upgrade.
Anyone who needs to manage multiple social media accounts will immediately see the convenience and value of being able to include all of their accounts!
Mailchimp is another example; their basic package is free, but if you want to setup automated emails, you need to upgrade your subscription.
The upgrade makes their business look good
If you’ve ever used the free version of software such as Powtoon or Piktochart, you will know that part of the conditions of use are that the branding of the software goes onto your finished piece of work.
For a more polished look, free of another business’s branding, many will pay the subscription charge to access premium features. Other upgrades that can make businesses look good include; the ability to add guest access (Slack), personalized templates (Nutcache) or more participants (GoToMeeting).
How Can You Convince Customers To Upgrade?
As we’ve found, customers upgrade because they can see and understand the value in it for them, and how it will benefit their business. Here are some ways to ensure that your customers are convinced…
Make sure the customer understands the features available
Dropbox is a great example of a company finding new ways to show off their product features and ensure that their clients know about them. They reward customers with free space just for taking a virtual tour to learn more about the product.
Customers who don’t upgrade often just don’t understand the advantages of doing so. Whether you incentivize their learning as Dropbox has, or use tutorials on social media, highlights in your newsletter or an old-fashioned phone call, make sure you have done all you can to highlight the upgrade features and benefits to your customers.Find new ways to show off your product features and ensure customers understand them!
Know what to charge for
Pricing is an essential strategy for any business. In the case of a SaaS business it’s about understanding how to get the customer to engage with the product first, and after that, learning which features they would be willing to pay for.
This means that if you offer a free or cheaper version, you should include the essential features required to engage the customer in that version. If you don’t, then they could quickly lose interest without going for your upgrade.
On the other side of the coin, if you give away too many features for free, there may be no incentive for your customer to upgrade at all.
Pricing is about striking the right balance and knowing your target market very well. Pay attention to how they use your software and any predominant comments or suggestions that come through.
You could also try surveying customers and having team members call power users to understand how they are interacting with your product.
Focus on getting people to use your product first
Customer churn is a natural concern for SaaS companies, and apart from those freebie seekers we’ve already discussed, you want to be proactive about encouraging prospects to use your product.
Research from Bluenose found that lack of usage is the number one cause of churn in the SaaS industry, so getting customers to use your product once they’ve signed up should be a key focus.
The idea is that if you can get your prospects to become regular users, you will naturally develop power users or raving fans. These are the kinds of customers who don’t need to be “sold” an upgrade, they will come looking for it themselves through familiarity with your product.
If you focus on educating rather than selling, consulting with customers rather than telling and understanding their businesses so that your product is mapped to their pain points, then your customers will naturally seek more from you.
Convincing customers to upgrade to the next tier of service does not need to be difficult if you’ve already got the groundwork in place. Prospects should know you, understand your product and clearly see how it is beneficial to upgrade.
This also means that you know your audience well enough to understand how much to charge and what upgrades they will be willing to pay for.
It’s less about “convincing” the customer and more about educating them so that they decide to upgrade on their own.
If you have been proactive about showing the customer how to get the best out of your product for their business and have demonstrated value, then you have done all you can to lead them to the upgrade decision…