Getting Your SaaS Customers to Upgrade to the Next Tier

by Carmen Apostu
Blog Post

You work hard (and probably spend a lot of money) acquiring new customers, so it’s important that you have good retention strategies in place to keep them.

One strategy which is shown to encourage customers to stick around for the long term is to work on getting them to upgrade their service with you. As Lincoln Murphy says:

The data shows that the faster you get your prospects started in your Free Trial, the more likely they are to convert to a paying customer.

Likewise, the faster you get them on-boarded and your service adopted within their organization after becoming a customer, the more likely they are to stay a customer… for a long time.

Moving beyond the basic first tier, customers who upgrade tend to be around for even longer. An upgrade is a sign that they’ve fully integrated using your tool in their everyday business and it’s an important part of getting work done.

For your SaaS, money from customer upgrades is known as “expansion revenue” and as Lincoln Murphy points out, customer retention + expansion revenue = profit acceleration. That’s what we’d all like, right?

What can you be doing to encourage the customer upgrade? Here are a few thoughts.

Understand why they don’t upgrade

There are a few reasons why customers don’t upgrade, but one of the primary factors for anyone who has already signed up with you is that they simply don’t see the value in doing so.

One of the things SaaS often agonize over is coming up with the right pricing and tier strategy, because if you get that wrong, customers won’t go for the upgrade. Sometimes SaaS get that mix wrong so that customers can’t see the value of upgrading, but other times it might be a case of not communicating the value of upgrading very well. Are you promoting the features of the upgrade regularly to current customers?

There’s an art to SaaS tiers. Each level must deliver enough value that the customer sees success with the product, but hold back enough that there is incentive for them to upgrade. Imagine if Dropbox had begun by giving away 1TB of storage on the free plan they had when they started? Instead, the tiers provide enough incentive, including extra features like syncing of data, that customers who need it will see the value in upgrading. Customers who are happy where they are won’t upgrade.

Are you onboarding the right customers?

SaaS who offer a “free plan” will tend to attract a lot of the types who just sign up to anything free, which is why we would advocate free trials over “forever free” plans. You need to be very clear about who your ideal customer is and how you will attract those people to sign up.

“Shiny object syndrome” is a real thing that sees all those free tier users signing up for everything free they come across, with no real intention of actually upgrading. They also tend to churn relatively quickly, which is actually doing you a favor so you can focus your resources on those who are serious.

Who is your ideal customer? Where will you find them? What will they see as a true value proposition? Remember, “free” isn’t really value, the value is derived from solving a real problem or problems that the customer has.

Encouraging customer upgrades

If the primary reason why customers don’t upgrade is that they don’t see the value in doing so, then it follows that they upgrade when they can see that value. Here are a few thoughts on ensuring that you get your pricing and upgrade strategy right, so that customers can see value:

Understand what your customers value

You may think you know intuitively what your customers really want, but when you’re in the middle of your own SaaS, it can be difficult to see past your own ideas sometimes. If you understand what your customers really value and structure your tiers and pricing to match, you can sell them on it before they’ve even considered a free trial.

To get a real understanding of what your customers value, you’re going to have to (surprise) talk to them! Use surveys, panels, beta users or pick up the phone and talk to your customers – get their raw feedback.

At the same time, you should be looking at data pulled from the usage of your SaaS (if you have it). Understand customer usage patterns and which features are popular.

Keep the customer experience a high priority

If your product is great but your overall customer experience is substandard, you’ll probably lose the customer before they even think about upgrading. Sometimes SaaS make the mistake of focusing all of their energy on getting new signups, while neglecting those who have already signed up.

Just remember – churn is a real issue so once the customer has signed up, it’s not a done deal.

Keep in regular contact with your users, inform them of updates and generally make sure they remember who you are! You should also make sure that customer service is of a consistently high standard and is easy for customers to access.

Examine your pricing

Did you know that research shows us customers will consider price, quality, and value (in that order) when making buying decisions? Price has an impact on the impression that the customer has of the other two factors.

This means that the customer doesn’t automatically see value in a low price – they might assume that the product is low quality to be so cheap. On the other hand, they might consider that an expensive product must be of high quality and high value.

Pricing your SaaS in line with the value you deliver for the customer is another thing that expert, Lincoln Murphy discusses:

“Every pricing plan you offer should have a story behind it; a use case, a type of customer, and a Desired Outcome.

In fact, when you start to tie pricing to Desired Outcome, you move into the revenue goodness that is real Value Pricing; selling outcomes rather than features and technology.”

Are your tier features and pricing aligned with clear desired outcomes?

Hold back just enough

While your customers need to at least have a taste of all core features to understand that they like them and that they’ll get value from them, if you give too much to the bottom tiers, there’s no real incentive to upgrade.

SaaS often entice customers to upgrade to the next tier by:

  • Giving them more of a core feature. For example, the ability to add more contacts, send more emails or get more storage.
  • Adding an extra layer of convenience. For example, social scheduling tools like HootSuite allow you to add more social accounts if you upgrade.
  • They offer additional features which aren’t available in the lower tier. Dropbox offers anywhere access and smart sync only on their professional plan. These are the sorts of features where a user on a lower plan would have said, “I like how I can do this with Dropbox, but wouldn’t it be nice if I could have anywhere access for more convenience?”

You might need to test exactly what “holding back enough” means for your SaaS, but look at the feedback you get from customers as a guide. If they don’t see the point of upgrading, they’ll let you know.

Focus on engagement

As we talked about in our recent article on SaaS churn, the signs are often there that a customer may be thinking about leaving and one of those is that they’re simply not using and engaging with your app.

You’re not going to get upgrades without engagement so focusing on your current users, ensuring they’re getting value from using the app and generally being helpful to them should be a priority. If you can start to get people becoming “power users” of your app, an upgrade will be logical to them and they may not even need to be sold on it.

Final thoughts

Getting customers to upgrade is important for the long-term viability of a SaaS. Where retention and “expansion revenue” are developed, you have the opportunity to grow your profitability much more quickly.

The primary driver of upgrades is engaged users who can see the value in upgrading. There has to be enough incentive to entice them and to deliver an improved outcome for them.

Know what your customers value and be prepared to test different structures to get it just right. Upgraded customers tend to stay around longer, improving the overall prospects for your SaaS.

Koombea develops feature-rich, engaging software products. Talk to us today about how we can help create yours.

 

by Carmen Apostu
Blog Post