This article is Part 3 in Dr Greg Chapman’s ‘Five Profit Drivers’ Five Part Series.
Follow these monthly articles for a comprehensive guide to driving profits with expert marketing advice for your small business.
Last month, Dr Chapman described the second profit driver – increasing conversion to sales.
The third of the Five Profit Drivers is “Increasing the Average Value Per Sale”
When they ask: “Do you want fries with that?” McDonalds knows that about a third of their customers say yes. The marginal cost of the fries is small. Their overhead costs, which are quite considerable, the restaurant, staff and equipment have not changed because of this additional sale. The cost of the fries, the potatoes and packaging, is a small fraction of the selling price of the fries, so almost the whole price of the fries goes straight to the bottom line, all achieved by asking a simple question at the time they were making a sale.
The easiest time to make a sale is at the time your customer has just made a purchase decision.
This is because they have just overcome the biggest obstacle to buying from you – confidence that you will deliver.
The fries in this example is a cross-sell. “Would you like to super-size that?” is an up-sell. McDonalds also package their meals, so you could just buy a burger, or a happy meal which includes a drink as well as fries, and a salad.
In each of these examples, McDonalds has increased the average value per sale.
In most businesses there are opportunities to increase the value of your offer. If you don’t own a burger franchise, here are some other ideas. Many stores like to offer extended warranties on their products.
Does the product also require batteries? If someone is buying an mp3 player, would they like to get a set of external speakers to use without the headphones?
A shoe store could also sell laces, polish and socks. An accountant could also offer quarterly reviews for small businesses in addition to their annual tax return. A car mechanic could offer a detailing service and a pick-up and delivery service.
Packaging is a very powerful way of increasing the average value per sale.
Higher value packages with premium features can be offered. This is common in restaurants where you can order al a carte, or choose from a range of banquet options at different price points. The Family Banquet or the Emperor’s Banquet – guess which is more expensive!
The key to making these strategies work is to find the opportunities first, create the packages and determine the product associations. Clearly identify the benefits of each of your packages so that you can offer the customer choices of value.
The accountant could just offer their tax return service, or their Small Business Financial Success Plan. The mechanic can offer their standard silver service, or their gold service which includes detailing and pick-up.
Once you have created all these value add opportunities, you could also offer your staff incentives to sell these highly profitable add ons. The high margins from these incremental sales allow the business to offer generous commissions.
Create a menu of these offers and packages and train your staff in how to sell them. Monitor the results to see the impact on your Average Value per Sale. It may be necessary to adjust the packages and prices to maximise the increase in your Third Profit Driver.
- Identify the cross sell and upsell opportunities for your business.
- Create packages for different levels of value with pricing that demonstrates this value.
- Incentivise your staff to increase the value of each sale.
Dr Greg Chapman is the author of the award winning best seller, The Five Pillars of Guaranteed Business Success. Visit Empower Business Solutions to learn more about marketing your business and a free preview of his book.