What is Cross-Sell Rate?
The Cross-Sell Rate measures the proportion of a company’s revenue attributable to cross-selling strategies, expressed as a percentage.
How to Calculate Cross-Sell Rate?
Cross-selling describes the strategies utilized by a business to incentivize customers to purchase more products (or services) to improve their revenue (“top line”) performance.
The target customer group in cross-selling tactics are existing customers who completed a purchase in the past, or customers currently in the process of completing a transaction, i.e. near the checkout stage.
For a cross-sell strategy to be deemed effective, a customer must purchase an adjacent, complementary product or service in addition to the initial, core purchase.
Therefore, the cross-sell rate reflects the proportion of a company’s total customers who purchased complementary items on top of the “core” product.
The most frequent cross-selling techniques to encourage customers to purchase complementary items are as follows.
- Product Bundling → Group Similar Products with Discount Attached
- Customer Loyalty Programs → Reward Point System and Special Discounts
- After-Sale Follow Up Campaign → Email Newsletter and Physical Mail
- Point of Sale (POS) Add-On → Recommendation of Products at Checkout
In order to compute a company’s cross-sell rate – which can be determined on a customer or revenue basis – there are two pieces of data required.
- Cross-Sell Customers (or Cross-Sell Revenue)
- Total Number of Customers (or Total Revenue)
To accurately collect the number of cross-sell conversions (and cross-sell revenue), customer-level data is necessary to extract the actual figures tied to cross-selling.
Counting all transactions with more than one item would be an inaccurate proxy to evaluate the effectiveness of a company’s cross-selling efforts, albeit there are times at which limited customer data can be a constraint.
What is a Good Cross-Sell Rate?
Cross-selling, akin to upselling, is intended to derive more revenue from customers that already have their “foot in the door”. Hence, such strategies are viewed as easier (and more cost-efficient) relative to acquiring a new customer, which tends to be costly at times.
For instance, cross-selling is an integral part of long-term revenue generation and repeat purchases in the retail and eCommerce industries.
In practice, the cross-sell rate is a method to track the effectiveness of a company’s cross-selling strategies.
- High Cross-Sell Rate If a company’s total revenue is composed of a significant amount of cross-sell revenue, the strategies being utilized would be perceived as effective (or vice versa).
- Low Cross-Sell Rate If a company’s cross-sell rate is low relative to comparable companies in the same (or similar) industry, further adjustments to its business model might be necessary using historical customer data to better understand their target end market’s spending and behavioral patterns.
However, the importance of cross-selling is contingent on the sector that the company in question operates within, as the reliance on such strategies differs substantially by industry.
Cross-Sell Rate Formula
The cross-sell rate can be determined on either a revenue or customer basis, as mentioned earlier.
The formula to calculate the cross-sell rate divides a company’s cross-sell revenue by its total revenue over a given period.
On a customer basis, the number of cross-sell customer conversions is divided by the total customer count.
Since the cross-sell rate is expressed in percentage form, the resulting figure must then be multiplied by 100.
Cross-Sell Rate Calculator
We’ll now move on to a modeling exercise, which you can access by filling out the form below.
1. Customer Cross-Sell Rate Calculation Example
Suppose you’re tasked with calculating the cross-sell rate of a B2B SaaS business given the following operating data for the month of June 2023.
- Total Number of Customers = 100
- Number of Cross-Sell Conversions = 10
Of the 100 existing customers at the start of the month, 10 enterprises completed a cross-sale transaction, in which a complimentary product or service was purchased.
Given the two necessary pieces of customer-level data – the total customer count at the beginning of the month and the cross-sell conversions – we arrive at cross-sell rate of 10.0% by dividing the total customer count by the cross-sell conversions.
- Customer Cross-Sell Rate = 10 ÷ 100 = 10.0%
2. Revenue Cross-Sell Rate Calculation Example
In the next part of our exercise, we’ll derive the cross-sell rate using the data from the prior example.
For the sake of simplicity, the implicit assumption in our model is that the revenue per customer and revenue per cross-sell conversion is equal.
In reality, the cross-sell revenue per conversion should be much lower, although there can be exceptions at times. For example, if a company’s business model offers a multi-year subscription plan for the B2C market, the cross-sold product(s) may be a one-time purchase at a higher price point.
Our revenue roll-forward assumptions are as follows.
- Beginning Revenue = $400,000
- Cross-Selling Revenue % of Beginning Revenue = 10.0%
- Upselling Revenue % of Beginning Revenue = 5.0%
The cross-selling revenue and upselling revenue is the product of the beginning of period revenue and the coinciding model assumption.
- Cross-Selling Revenue = 10.0% × $400,000 = $40,000
- Upselling Revenue = 5.0% × $400,000 = $20,000
- Ending Revenue = $400,000 + $40,000 + $20,000 = $460,000
The revenue from cross-selling and upselling amounts to $40k and $20k, respectively.
In closing, the cross-selling revenue ($40k) can be divided by the beginning of period revenue ($400k) to arrive at an implied revenue cross-sell rate of 10.0%, which matches our initial assumption.
- Revenue Cross-Sell Rate (%) = $40,000 ÷ $400,000 = 10.0%