On today’s episode, we cover a question that we get almost every day from customers: should I use security reporting software as an upsell or value add? This ended up being a significantly longer than normal episode because we both have so much to say on this topic.
Let's start by defining the upsell approach vs. the value add approach and then we'll talk about the pros and cons of each.
Defining The Terms
Using security reporting software as an upsell means factoring in the cost of the software and the devices, plus a profit margin, and adding that amount to the price of your bid. You add it as a separate, optional line item, so the customer can choose to opt out or accept the higher price and get the advantages of the software.
“What you’re doing is you’re taking the cost of using the system, and you’re passing it on to the customer, with a margin, of course,” says Johnny.
On the other hand, the value add model requires you to front the cost of the software. It becomes the default way you operate, and you use the system as a differentiation tool. Rather than use the software as a way to make more money upfront, you let it save you money by increasing efficiency, as well as improving customer retention.
Pros And Cons Of Upsell
We all know that margins in the security industry are extremely slim, so it makes sense that operators want to guarantee that they can cover the added costs. It’s easier to justify spending money on security reporting software when you can directly point to a price increase that will keep margins intact. Additionally, the upsell method is less commitment, as the high price creates a barrier so that you only use the software for customers that really want it (and who are willing to pay for it).
On the downside, it becomes a much harder sell when you don’t use the software on a regular basis. Companies that pursue the upsell method often don’t even buy the software until they win clients with it, which means they’re trying to pitch a system they’ve never seen in use before.
“You better know what you’re talking about when you go in the door,” I tell Johnny. “They’re going to have some questions if you start throwing prices at them.”
Since it’s more difficult to pitch to customers with the upsell method, you tend to end up with many accounts not using the software, and that reduces the efficiency and cost savings that come from having all customers on Silvertrac.