Mastering cross-selling: Strategies of top performers
This is an excerpt from the Service Leadership Inc.®, a ConnectWise company newsletter, “Mastering Cross-Selling: Strategies of Top Performers.”
What exactly is cross-selling? According to Investopedia, “Cross-selling is the practice of marketing additional products to existing customers.” For IT solution providers (TSPs), their Predominant Business Model™ (PBM™) will determine the product(s) to cross-sell. A product-centric provider (VAR) will most likely have an extensive “line card” with products that span a variety of target customer profiles (TCPs), whereas an infra-structure managed service provider (MSP) may have older clients on time and material or block time contracts and needs to upgrade these customers to a monthly recurring revenue (MRR) model. These MSP’s may also have legacy MRR customers on older managed service offerings that do not include some of the product and/or service features of their current, most inclusive “full meal deal” managed service offering. In either case, lower Operational Maturity Level™ (OML™) TSPs will continue to maintain their various separate products/services, while best-in-class TSPs will endeavor to upgrade all their customers to their single, ”full meal deal” package. Independent of the product or PBM, the process of cross-selling is the same.
What is best-in-class cross-selling?
As long as the range of solutions and services can be delivered with good quality and gross margin, each and every customer account should be encouraged to consume as many of the different offerings as possible.
There are four reasons for this:
- Generally, the least expensive way to generate new revenue is to sell something additional to an existing customer with whom you already have a relationship.
- The more customers buy from you, the more dependent they will generally become on you. Partly, you are harder to replace, and partly, each customer derives more value from the relationship. This increases the chances the customer will stay with you for a longer period of time.
- Every new account sales cycle results in the greatest possible revenue as soon as possible.
- Service operations become increasingly simple when all customers look more like each other.
The last three points are why top-performing TSPs only sell their fullest service packages to each new customer. That said, even the best-in-class, like everyone else, have customers who weren’t sold the “full meal deal” up front, who must be pleasantly and persistently sold everything they have to offer (i.e., 100% cross-sold). The best-in-class accomplish this by having this single “full meal deal” offering that all legacy accounts are “upgraded” to. Even then, the best-in-class will also periodically add new offerings to their “full meal deal” offering and need to sell their existing customers onto that new offering.
Important to note: If the range of customer types (by size, vertical, or some other dimension) you serve is so varied that no one customer can buy all of your offerings, then you are attempting to serve a range of customers that is wider than you can build a business around that produces best-in-class profit, growth, service quality, and market differentiation. It is useful to calculate the average revenue for the sale of each of your offerings (that is, every solution offering and recurring offering). Then, calculate what your company revenue would be if you sold every one of those offerings to each of your existing customers. Often, this will result in company revenue of 50% to 200% of your current revenue.
Granted, some of your customers today might fall outside your TCP, in which case, by definition, they can’t buy all your offerings. But even if you narrow the calculation to just your current clients who match your TCP, often your company revenue with 100% cross-sell will be substantially larger than your current revenue. This can help alleviate anxiety over “too narrowly” defining your TCP.
Low-performing TSPs often struggle to sell multiple, much less all, of their offerings to any given customer. In order to drive revenue growth for each of their solutions and services, these TSPs must obtain too many new customers.
These TSPs don’t fully mine their own customers by capturing the fullest portion of the customer’s entire IT “wallet” encompassed by their offerings. They sub-optimize their customer base in terms of revenue generation. This undermines the effectiveness of sales and marketing, and, as we have seen, customer retention and service scalability and quality. These TSPs will likely have to over-invest in sales and marketing to secure each additional revenue and gross margin dollar.
In contrast, top-performing TSPs define their TCP carefully. That way, they can deliver all solutions and services in a way that all customers can consume all of the offerings.
The methods for ensuring that most accounts buy more (or all) of the offerings of the firm are called cross-selling. Therefore, implementing effective cross-selling execution starts with defining a sufficiently narrow TCP that a supportable range of offerings can be sold to all of them.
If your reaction to this is, “But if I narrow the breadth of my TCP that much, I won’t have enough sales opportunities,” you should know that top performers (both in profitability and in growth), follow this path. Doing more and better with fewer, is the most effective way to accomplish best-in-class profit and growth. In fact, data from the Service Leadership Index® (S-L Index™) indicates that strict adherence to TCP by the best-in-class leads to 151% greater adjusted EBITDA than the average MSP.
A TCP selection is necessary to then determine the products, process, skill levels, and tools needed to support this chosen TCP. These technology standards (tech stack) should be assembled into a single tech stack that together with your processes forms a single package with pricing based upon the value you provide. With this laser focus on TCP and tech stack, best-in-class TSPs are able to hire and train less skilled technicians which enhances customer and employee satisfaction, as well as profit. With this single tech stack, you can drive your sales and marketing efforts to cross-sell with increasing effectiveness over time. The S-L index data indicates that best-in-class adherence to a single tech stack affords them double the adjusted EBITDA of the average MSP.
This is an excerpt from the Service Leadership newsletter, “Mastering Cross-Selling: Strategies of Top Performers". Read the full article to get the blueprint for how the best-in-class cross-sell.