What is Upsell Rate?
The Upsell Rate is the proportion of upsell revenue generated relative to a company’s total revenue, expressed as a percentage.
How to Calculate Upsell Rate (Step-by-Step)
The upsell rate measures the percentage of a company’s total revenue that stems from upselling, which refers to tactics used to increase the total amount spent by customers.
Since selling a product or service to an existing customer, or a customer on the verge of completing a purchase, tends to be far easier than selling to a new customer, companies attempt to capitalize on existing customers via upselling.
Therefore, the upsell revenue derived from existing customers that have already purchased an item – i.e. the incremental revenue in excess of the baseline revenue prior to the upsell – is perceived to be an easier method of bringing in more recurring revenue, as well as building customer loyalty.
- Higher ARPU: A company effective at converting their upsell opportunities will not only see an uptick in their average revenue per user (ARPU), but also the total number of initial purchases would also increase as a side benefit.
- Customization: The increase in the number of orders is attributable to the fact that customers are presented with more customization and the option to upgrade, rather than the traditional constraint where additional features or services must be bought, irrespective of whether the customer needs them or not.
- Continuous Product Development: A company continuously integrating new upselling strategies into their business model implies that more innovative features (R&D spend) will continue to be added to the product itself. Therefore, the product is not a one-time order in which the capabilities as of the date of the original purchase remain unchanged. Instead, the continued product development and new updates to improve the offering results in more value to the end user over time, which of course comes at a price to the customer. But to reiterate, the decision to upgrade to a higher tier is still at the customer’s discretion.
The process of calculating the upsell rate can be broken into three steps:
- Step 1. Determine the Upsell Revenue and Total Revenue Over a Given Period
- Step 2. Divide the Upsell Revenue by the Total Revenue
- Step 3. Convert into Percentage Form by Multiplying the Decimal Figure by 100
