Add-Ons in Action
Add-ons are those delectable a la carte items you find on your favorite menu. They donʻt come with the combo but you can still have it for an additional fee. Now I want hush puppies. When it comes to pricing, how should you think about add-ons? Well, hereʻs what I know.
Iʻm Loving It
Youʻre probably familiar with the golden arches of McDonaldʻs. They likely wouldnʻt be so successful without their fries and apple pies. Thereʻs even a whole childrenʻs song about it! But youʻll notice how most combination meals come with fries while none of them come with apple pie. Imagine going inside to order a burger, fries, and a drink all a la carte; nothing comes together. Take it a step further and imagine ordering a particular number of fries with each fry costing 3¢. Feels a little nickel and dimey, donʻt you think? This process would be way too complicated and is guaranteed to turn customers away.
The meals at McDonaldʻs are bundled together with a burger, fries, and a drink. All you have to do is specify what size fry and beverage and youʻre good to go! However, thereʻs no pie included. You have to ask for that. How did they get here? Well, you have to grow with your customers and experiment with combinations to see what most people who buy this particular thing want with it.
Yes, McDonaldʻs sells coffee but it doesnʻt come with your Big Mac. The coffee is bundled with their breakfast combos. The data must show that folks donʻt tend to buy apple pie with their chicken nuggets otherwise youʻd get a side of pie instead of a side of fries. Look a little deeper at the menu, though. Sure you can buy a single apple pie but thereʻs also a special price for a pair of pies (at least here in San Diego there is)! Someone noticed that of those who buy apple pies, a significant number like to buy two. This is growing with your customers. Let them tell you what they want. Then… give it to them! And remind them of the two-pie deal in case they try to get away with just one. Boom! Easy upsell with low customer acquisition costs.
Hereʻs a quick guide to properly position add-ons:
They create a lot of value for a few
Are easy to activate
May carry a variable cost
Add-ons are things that are nice to have but not necessarily needed for all customers. Even though less than 30% of your customer base would use these features, itʻs still smart to offer them. Not having the following as part of your packages could mean lost deals for a narrow, yet profitable segment:
Enhanced features (AI-powered, use case specific, hardware)
Premium services (training, onboarding, support)
Advanced analytics and reporting (richer data, personalization)
Premium integrations/API Access (depth or breadth of access)
Advanced workflows (unlock new value with automation)
More volume/higher limits (but don’t penalize usage)
Ok, that last one is specifically for me but you see where Iʻm going here, right? Most of your customer base wonʻt need/want these features but enough of them may, which is why theyʻre add-ons and not bundled into the packages.
Serving Up Add-Ons
So, we know niche features arenʻt included in a plan but you can still use those plans creatively to upsell add-ons.
In Product - While a customer is using your product, you can show them an add-on and even let them try it out. SurveyMonkey is a good example of this.
Gated - Some companies, like Segment, only allow access to certain add-ons to those who belong to a specific tier. This technique encourages the customer to upgrade their plan.
Free Trial - We know what this means. A customer can try an add-on for a limited time. This strategy used by Baremetrics allows the customer to really get a feel for the feature before committing.
To Be or Not To Be an Add-On?
Thereʻs a fairly simple way to decide what should be included in your packages and what should be an add-on. Compare your customerʻs willingness to pay (WTP) to how important (usage intensity) the features are to them to create four basic quadrants.
After youʻve graphed your data youʻll see a scatter plot spread out across four areas. The top left quadrant of high WTP and low usage intensity/importance is your add-on zone. There are customers who will pay for the feature. However, there arenʻt many who would use it regularly.
Value vs Usage vs Competition
You might find that some of your add-ons should be table stakes (basic features) while other features included in your packaging should be add-ons.
Have low usage features in your packages? Consider moving them to a premium plan or make them add-ons.
Have medium to low differentiated features in your premium plan? Consider moving them to your basic packages.
Have medium to low value add-ons? Consider adding them to select packages.
Remember to experiment and grow with your customers. What worked last year might be different this year. Be strategic with add-ons without making buying/selling a complex process. If theyʻre willing to pay, let them! Speaking about WTP, check out my last blog, The $1,500 Paperclip, where I go into more detail about how to capture WTP.