Product Management
Product Add-Ons Are An Expansion Myth
1 Dec 2024
Add-on products won’t help you grow. They’re limited to your current customers and only some of them will buy an add-on. Your total market is constrained.
Creating and selling add-ons to existing customers is easy. It’s hard to envision how you’d sell a standalone product.
Add-on sales can boost revenue, but this isn’t sustainable growth. Some customers won’t buy this, so the add-on will grow more slowly than your main product. Even if the combination attracts some new customers, you’re still mostly selling to existing customers.
While add-ons don’t work as a growth lever, they can help you reach more customers by unbundling your product. They are a powerful pricing and packaging tactic. By splitting your product into a lower core price and paid extras, you can still capture the higher revenue from those that need the extra capabilities while still serving a broader market.
Too many add-ons will create choice fatigue. Focus on features that have a clear standalone value. Avoid breaking up your features so much that customers feel you’re charging for every little feature. An add-on works best for features with an obvious value that’s not part of the core experience.
There are two situations where you should look at unbundling as an add-on.
When you have a feature that’s very valuable to some customers, but other customers don’t value at all, this can be an opportunity to unbundle That feature into an add-on. You can lower the base product price to let you capture more customers. Then still capture this high value from the customers that desire it.
Add-ons are also effective for features with a pricing and value model that’s different than the core pricing model. A fixed-cost product can have a usage-based add-on. Many seat-based cloud services sell additional storage by the amount consumed. When buyers know that usage will be highly variable, very valuable, and costly to support, they’ll accept consumption pricing for an add-on. This works very well for physical-world things like storage, mileage, or compute.
Add-ons can also work well for things that are extremely valuable to small numbers of customers. These tend to be more expensive and are tied to complex use cases. At Cisco, we offered a media server add-on for Webex customers with specialized security needs. These customers valued and expected this as a paid feature.
Add-ons are a pricing tool, not a growth engine. Use them to simplify your pricing, unbundle features, or serve a niche. But when it’s time to grow, you’ll need a second product. Focus on something new.