What is Ancillary Revenue?

Ancillary revenue refers to the additional income businesses earn from services or products beyond their main offerings. For example, airlines charge for checked baggage, seat selection, and in-flight meals, while hotels earn extra from in-room dining, spa services, and event hosting.

Supplementary products and services benefit the customer by providing more value and building upon the core offerings they’re already buying. And for businesses, ancillary income streams diversify the revenue base and create more opportunities to monetize from the same customers.

Synonyms

• Non-ticket revenue
• Incremental revenue
• Ancillary income

Key Sources of Ancillary Revenue

You’ll find ancillary products in any industry that offers additional services or features to enhance the customer experience. Any time it’s a choice to pay for something above and beyond the core purchase, that’s an ancillary source of revenue.

Let’s take a look at four of the most well-recognized examples:

Travel and hospitality industry

In the travel and hospitality sector, ancillary revenue is generated through services that complement the primary transportation and lodging offerings.

For instance, airlines often charge for checked baggage, seat upgrades, and in-flight food and beverage sales. These additional services give passengers more choices while allowing airlines to maintain competitive base fares (since they make extra revenue through other sources). This makes additional revenue streams particularly important for low-cost carriers.

Similarly, hotels enhance guest experiences and their revenue by offering amenities like spa treatments, in-room dining, and event hosting facilities.

SaaS and technology companies

Software as a Service (SaaS) and technology firms usually use a tiered pricing model, where they offer the base product at a standard rate, and users can opt for additional features or services at an extra cost. The tiered approach opens them up to multiple different types of customers, from small companies looking for a basic solution, up to enterprises that need something more advanced.

Beyond this, certain types of software naturally have ancillary revenue sources built into their monetization model. For example:

• Microservices build third-party APIs into their software, which other developers can use for a fee.
• Large-scale platforms, websites, and social networks generate significant ancillary revenue through advertising, data sales, and premium features.
• CRM and marketing automation software charge per-unit fees for things like marketing contacts and email sends.
• Payment processing software makes money off transaction fees.
• Most SaaS vendors offer implementation and premium support services for their enterprise customers.
• Some also have affiliates, resellers, or referral programs that generate income for third parties.

All of these are in addition to the recurring subscription payment that every user makes.

Ecommerce and retail

For consumer products brands in retail and ecom, ancillary revenue comes from services that enhance the shopping experience and provide added convenience.

• Extended product warranties
• Expedited shipping options
• Gift-wrapping services for special occasions
• Setup or installation services for larger items
• Personalization options, like monogramming or embossing

For direct-to-consumer sellers, this is one of the best ways to increase AOV.

Financial services

Financial institutions generate additional revenue through supplementary services beyond their core offerings. Banks charge transaction fees for certain types of accounts. They also offer insurance products like travel and life insurance, and they provide investment advisory services for a fee.

Benefits of Ancillary Revenue

Compared to having just one revenue stream, ancillary offerings strengthen a company’s financial position and foster stronger customer relationships.​

Broadly speaking, there are five reasons to pursue ancillary revenue opportunities:

Income diversification

By developing ancillary revenue streams, businesses reduce their reliance on a single source of income. Revenue diversification is a financial buffer during economic downturns and industry-specific challenges. For instance, during low-demand periods, hotels use ancillary sources like spas, restaurants, and lounges to hedge against a drop in occupancy rates.

Ease of implementation

Introducing ancillary services that naturally complement existing products can be straightforward. A hotel adding spa services or a SaaS company offering premium support and API connectors are logical extensions of their core offerings. You can integrate them seamlessly, sometimes without any significant operational changes.

Improved customer experience

One source of income means just one way to deliver value to your customers. Offering value-added services enriches the customer journey by providing giving them more personalized and comprehensive solutions.

For example, an airline offering seat selection and priority boarding makes it even better for passengers with disposable income who value comfort and convenience. And it doesn’t infringe on the other passengers’ experience either.

Increased profit margins

Ancillary products and services usually carry low overhead costs, making them lucrative upsell opportunities that can significantly boost your profit margins. For instance, airlines charging for checked baggage generates additional income, but it doesn’t cost them anything extra to do so.

Through your ancillary offerings, you might even be able to justify a higher base price for your core product. Things like premium support, customization options, and upgrades position your company as a premium brand. If you can pass some of those benefits on to the everyday user (or at least give them the illusion that they’re receiving extra value), you’ll create an even more attractive offer.

Higher customer retention

Long term, the focus on customer-centric sales leads to increased loyalty and positive word-of-mouth. In some cases, it can even increase their dependency on your product (e.g., when a customer integrates their workflows with your API connectors and other third-party tools). As a result, the churn rate decreases, and customer lifetime value (CLV) increases.

Challenges in Managing Ancillary Revenue

If you’re thinking about incorporating new products and services into your catalog, you have to carefully consider how customers will react, how it will work with your core products, and how it will affect your overall business strategy.

Here are five challenges you might face:

Customer perception and satisfaction

Introducing additional fees for services that were once complimentary leads to customer dissatisfaction. Since Southwest Airlines’ founding in 1967, the carrier has continuously differentiated itself from competitors by offering free checked bags. However, they’ve just done away with that policy, and it’s severely damaged their reputation.

Customers also tend to get frustrated when revenue is generated through fees that aren’t value-added. Service fees on apps are a perfect example of this — customers feel like they’re being nickel and dimed.

Increased product and operational complexity

Even if something is fits into your core product or service like a missing puzzle piece, that doesn’t exactly mean offering it is straightforward.

Let’s say you’re a SaaS vendor who wants to start offering managed services. You’ll have to hire a whole new department to provide the actual service, and you’ll need to train your sales and customer success reps on how to sell it. Both require significant investment.

You’ll also have to consider product complexity. If you’re adding new paid feautres or modules to your existing product, you’ll have to ensure they integrate seamlessly with the rest of your offering and provide a great user experience, but don’t infringe on the product’s core functionalities.

Competition

Introducing new revenue streams means competing with other companies that are already well-established in that space. This can be especially challenging if your competitors have deeper pockets and more resources to invest in marketing and product development.

Since these companies aren’t always the ones your core offerings compete with, you’ll need to develop and implement a new competitive strategy specifically for this revenue stream.

On top of that, as more companies adopt an ancillary revenue model, the market becomes saturated. This makes product differentiation even more difficult. This increased competition may lead to price wars or the need for continuous innovation to maintain a competitive edge.​

Data management and integration

Effectively managing all your income sources requires a more comprehensive, centralized data system that’s capable of integrating multiple sources. Otherwise, you’ll have problems with data silos, duplicated efforts, and inaccurate reporting.

Regulatory and ethical considerations

Implementing ancillary fees requires certain companies to adhere to regulatory guidelines and ethical standards (particularly airlines and financial service firms).

For instance, the Durbin Amendment directs the Federal Reserve to limit interchange fees charged to merchants for debit card processing. The goal is to make sure these fees are “reasonable and proportional” to the actual cost incurred. That way, these companies can’t pass on excessive charges to consumers.

Insurance companies are another example, since they offer ancillary products like additional coverage options. However, if these products are bundled in a way that pressures consumers into purchasing unwanted services, it raises ethical concerns regarding consumer autonomy and informed consent.

Strategies to Maximize Ancillary Revenue

Value-added offerings

Value-added services are all about enhancing the core experience. They give you a reason to charge extra. If customers feel like they’re getting something worthwhile, they won’t mind spending more.

How you can apply this:

• If you’re in SaaS: Offer priority support, advanced analytics, or integration features that genuinely improve workflow efficiency.
• If you’re in ecommerce: Add options like eco-friendly packaging or exclusive product access for members.
• If you’re in financial services: Add premium advisory services or visualized portfolio insights for clients.

The key is to position your ancillary services as enhancements, not necessities. However, frame your value-added offer in a way that makes customers see the upgrade as a smart investment, not an unnecessary expense.

Personalized recommendations

Customers love personalization (and they don’t love generic upsells). More than 7 in 10 buyers say they expect personalized customer experiences. When you present relevant offers to them at the right moment, they’re more likely to say “Yes.”

How you personalize depends on the kind of data you can access and where you get it from. For instance, SaaS companies use customer usage data to suggest add-ons. Ecom brands and retailers go off purchase history.

Bundling services

Product bundling and bundled services are two ways to add more value while directly increasing AOV. They’re especially effective when customers already buy these items together, but at full price.

A hotel might bundle their stay with breakfast, late checkout, and airport transfers. Financial services companies package investment management, tax advisory, and financial planning into one premium-tier service.

The key here is to price the bundle strategically so that customers feel they’re saving money, even though they’re spending more overall.

Transparency in pricing and product features

Ancillary products and services can boost your revenue while delivering added value to customers. Still, it’s crucial to adopt pricing strategies that make customers happy to pay extra, rather than frustrated for “having” to do so.

A few examples:

• “Good, better, best” tiered pricing: Providing tiered options allows customers to choose the level of service that fits their needs and budget.
• Value-based pricing: Aligning prices with the customer’s perceived value makes them feel like they’re receiving fair value for their money.
• Usage-based pricing: Tying the final price to product usage gives customers the power to control how much they pay and save money during low usage periods.
• Freemium pricing: Offering a free service with limited features and paid upgrades lets custoemrs try the product out before locking them into a paid deal.

Regardless of the pricing strategy you use, you should always prioritize being upfront about additional costs. In some cases (like for hotels and ticket sellers), the Federal Trade Commission (FTC) has mandated companies disclose all fees upfront to combat deceptive pricing practices. But, even if it isn’t explicitly regulated, you should do so.

Dynamic pricing models

With dynamic pricing, you’re adjusting prices in real time based on demand, supply, input costs, competition, customer behavior, or some other variable. It makes businesses more agile and helps them protect their margins by reflecting the changing market conditions.

There are tons of examples of this:

• Surge pricing on rideshare apps
• Flash sales and scarcity tactics in ecom
• Lower rates for last-minute hotel bookings
• SaaS pricing based on usage volume
• Day-to-day price fluctuations on airline websites

Pricing engines that facilitate these processes use AI and machine learning to predict demand trends and optimize pricing. Be careful not to frustrate your customers with changes that are too frequent, though. If they value consistency and your product pricing isn’t based on availability or perishability, this strategy may not be the best fit.

Upselling and cross-selling

Upselling is about getting customers to choose a higher-priced version of what they’re already buying. Cross-selling is about getting them to add something complementary to their purchase.

The challenge? Making it feel natural and valuable, not pushy or annoying.

This goes hand-in-hand with value-added services. Premium features, extra storage, priority support at checkout, and “Frequently Bought Together” recommendations are all examples.

One approach is to upsell when customers meet certain conditions. For example, offer a discount on a second purchase after they’ve bought two items at full price. Or suggest an upgrade if they maximize features or usage limits with their current product.

Data-driven ancillary revenue optimization

Data is your secret weapon when it comes to maximizing ancillary revenue. The more insights you have about customer behavior, the better you can personalize your offers, adjust pricing, and predict demand.

• Use analytics to identify what ancillary products/services customers are buying most.
• Test different price points, bundling strategies, and upsell offers to see what converts best.
• Use AI to predict what customers will want next based on their behavior.

If you combine all three, you’ll not only increase ancillary revenue but also improve the overall customer experience, which means repeat business and long-term profitability.

Measuring Success with Ancillary Revenue Streams

You have to measure each additional revenue stream to understand which ones are performing well and which ones aren’t. To compare them effectively and understand their impact on your bottom line, you need to measure:

• Ancillary revenue as a percentage of total revenue
• Conversion rates for upsells and cross-sells
• Customer satisfaction and retention rates
• Ancillary revenue per user (for SaaS companies)
• Ancillary revenue by source

From there, look at revenue growth and your company growth rate post-introduction and see whether there are any spikes or dips in certain areas. This will help you fine-tune your ancillary revenue strategy and focus on the most successful tactics.

Examples of Successful Ancillary Revenue Strategies

To help you fully grasp the concept of ancillary revenue, here’s a look at five different companies that successfully added new products/services and monetized them to increase their overall revenue:

1. Ryanair and United Airlines

Ryanair has significantly boosted its income by charging for checked baggage, seat selection, and in-flight refreshments. In the fiscal year ending March 2024, the company generated €4.30 billion in ancillary revenue from baggage fees, food and beverage sales, and other products. This marks a 12% increase, equating to approximately €23.40 per passenger.

Similarly, United Airlines consistently leads in dollar volume of ancillary revenue by offering services like extra legroom seats and priority boarding.

2. Marriott and InterContenental Hotels Group (IHG)

IHG implemented a price optimization system that increased revenue per available room (RevPAR) by 2.7%. The system analyzes local market conditions and customer behavior to adjust pricing and offer value-added services, enhancing both occupancy rates and ancillary revenue.

Marriott uses a different mix of core offerings and ancillary services. Beyond room bookings, the hotel chain generates ancillary revenue through room upgrades, on-site dining, spa treatments, and event hosting. Their loyalty program, Marriott Bonvoy, also encourages customers to spend more by offering points and exclusive deals for ancillary services.

3. Visa and Mastercard

Visa and Mastercard earn a substantial portion of their revenue from transaction fees and value-added services like fraud protection and data analytics. These ancillary services are essential to maintaining trust and reliability in their payment networks, while also contributing to their bottom line.

4. Amazon Prime

Amazon Prime is a textbook example of bundling services to create a high-value, recurring revenue stream. At its core, Prime offers fast shipping, but it also bundles streaming video, music, exclusive deals, and more.

The perception of a comprehensive package at a single subscription price makes customers more likely to stay loyal and spend more overall on the platform, driving both primary and ancillary revenues.

5. Adobe Creative Cloud

Adobe offers its software suite on a subscription model, but it’s not just about the base product. They continually roll out premium features, additional cloud storage, and specialized tool integrations that customers can add for an extra fee.

The platform also offers an integrated set of additional services, such as Adobe Stock for stock photos and videos, Adobe Fonts for customizable fonts, and Adobe Portfolio for creating online portfolios.

They use dynamic pricing and upselling to maximize revenue from existing customers while evolving the product with market demand.

How CPQ Helps Increase Ancillary Revenue

One of the biggest challenges in selling ancillary services is knowing when and how to introduce them. CPQ (configure, price, quote) software solves this by automating upsell and cross-sell recommendations based on customer needs. Since the software is data-driven, it ensures only relevant offers are presented, reducing friction and increasing the likelihood of a successful upsell.

CPQ also automates dynamic pricing so businesses can charge the optimal amount based on customer profiles, purchase volume, or market conditions. For instance, if certain markets have different price sensitivities, CPQ can adjust ancillary fees regionally without manual intervention.

When ancillary revenue is tied to complex sales, like in B2B manufacturing, slow quoting processes kill conversion rates. CPQ solves this issue by automatically including recommended add-ons in quotes, ensuring nothing gets missed and routing approvals to the appropriate managers.

Overall, CPQ makes ancillary sales feel natural. By embedding relevant offers into the configuration process, it positions add-ons as helpful, not pushy. Through a value-first approach, self-service portals where buyers can see the ancillary options in real-time, and clear indicators of how each option impacts the total price, it eliminates sticker shock and increases transparency.

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