Chapter 10
Would you rather have many customers spending a little or fewer customers spending a lot? (Answer: many customers spending a lot!)
Of all of the Seven Keys, increasing the average transaction value across your business is the most powerful. It’s an effective way to increase your revenue and also the best way to boost bottom line net profits.
This is because you’ve already invested in lead generation to get the sale, you’ve already invested in the infrastructure to sell and deliver the product or service, you’ve paid all your fixed costs such as admin staff and professional fees, etc, etc. So every pound or dollar of gross profit from the extra sales that you make goes straight into your bank account!
The best part is that sometimes the direct costs involved in increasing the average transaction value are relatively small.
You can see this concept at work in the supermarkets, which seem to be constantly expanding into new product areas completely unrelated to food. They do so because they recognised that the original benefit of a supermarket — that they stocked a wide range of food — could be applied to nearly anything that their customers need: from clothes to electronics, to garden supplies and even banking.
In other words, the supermarkets realised that they are not in the food business; they’re in the business of providing a wide range of goods (and services) under one roof.
Here are a few ways to increase the average transaction value in your business.
Costa Coffee is a coffeehouse based in Britain with stores around the world. Its story is similar to that of Starbucks, in that they were both founded in 1971 and both started out selling roasted coffee beans, rather than the finished product.
There was a time when Costa baristas were in the habit of asking if I wanted an extra shot of coffee for £1. A whole pound! I thought it was a rip-off, but even if only 25% of customers agreed to the extra caffeine, this would have increased the average transaction value by 25p!
Now, a cappuccino is only around £2.50 in price, so this one strategy alone might have increased sales revenue, at least from cappuccinos, by 10%.
And what does that cost Costa? A few seconds of the Barrista’s time, some hot water and coffee grounds.
These days Costa sells freshly brewed coffee and a variety of other refreshments. Both they and Starbucks have recognised that their customers want more than the simple espresso and they’ve moved far beyond their mail order roots to now sell hot and cold beverages, food and snacks.
I once saw a small espresso machine on the shelf in a Starbucks, and why not? They know that their customers have an interest in coffee that is higher than the average population, so why not sell them the equipment they need to make it at home?
But, strictly speaking, that is an example of back-ending.
2. Back-ending
This means having a second, third, maybe even a fourth product ready to sell right after you make the first sale. This is the way real money is made in sales, and sometimes, it is the only way a true profit is made. Once you’ve won the customer, make sure that you offer them everything they need.
Successful back-ending means careful planning. It means having additional products ready to go and available at the time of the first sale.
Back-ending works best when you try to make that second or third sale right away, and not two weeks later when the customer has already cooled off, or even maybe forgotten about you.
If you sell shoes, also be ready to sell shoe polish, and maybe a pair of socks. If you sell a shirt – then sell a tie, or several ties. If you sell bicycles, sell as many accessories as you can: water bottles, pumps, and biking gear such as shoes, gloves, caps, and more. If you sell computers, sell software and an extended warranty.
This is beneficial to your customer or client as well: remember in Chapter 7 on Conversion I told you that customers take on risk when they do business with a new company that they don’t know much about. Once you have gotten over that hurdle and developed a customer relationship built on trust and excellent service, they will be happy to buy more products and services from you.
3. Pricing
Price your products or services too high and you won’t get the business; price them too low and you’ll wish you hadn’t got the business!
Remember these factors when setting your price:
The way to set the optimum price for your product or service is to determine the minimum price you can charge and still have a successful business, and then raise that price until you can see an impact on overall revenue.
Discounting is the lazy man’s competitive strategy and is applicable in only one situation and that is where you have a definite cost advantage (either fixed or variable) over your competitors, and your product or service is one where customers are very price sensitive.
What business are you really in? Answering this question correctly could be the key to unlocking massive potential in your company. From supermarkets to coffee houses, businesses are constantly reassessing how they deliver value to their customers.
At least, the successful ones are!