How to Grow Your Business – Part 3

Welcome to our 3rd article of our 4-part series on how to grow your business. Most business owners are currently working on or have plans of growing their business. As noted in our previous articles, to fully leverage your investment in marketing for growth, generate the best results to maximize profitability and long-term success for your business, you should consider the “4 Ways to Grow Your Business” in greater depth. By not addressing things from this perspective, you are missing out on invaluable opportunities to grow and build the value of your business.

Below is a summary of the 4 ways to grow your business that you need to consider:

1. Increase the number of customers (but only of the type you want)
2. Increase the number of times customers come back
3. Increase the average value of each sale you make
4. Increase the effectiveness of each process in your business.

In this article we will focus on the 3^rd way to grow your business, increasing the average sales value of each sale you make to your customers.

Ways to Increase Your Average Sale

Your customers come to you for assistance and guidance and it’s only logical that you make them aware of your full product or service range. They might currently buy a single product from you but there could be other complimentary ‘add on’ products they would buy if they knew they were available. Remember, you’ve invested valuable time and money to win them as a customer. What can you do to get them to purchase more from you before they leave your business or website?

However, before launching into any of the strategies listed below, it’s crucial that you know your numbers. If your daily sales were $30,000 and you made 30 sales on the day the average sale value would be $1,000. Depending on the type of business you operate, you may also wish to measure your average hourly sale, average sale for each day of the week, average sale for each employee or average sale per marketing campaign. You need to know your current baseline metrics so you can devise strategies to lift sales results.

As you can appreciate, there are several ways you can increase the average sale or transaction value. Below are some proven successful strategies.

Cross-Selling or the Add-On Sale – I think we recognize that McDonalds is a master of the add-on sale. How many times have you been asked the question, “Would you like to upsize your fries or drink?” It’s the classic example of a simple cross-sell to increase average sales and this same approach can work for almost any business.

Another possible way to generate add-on sales is to create a list of related products. For example, a hardware store could have a ‘DIY Paint Checklist’ on display to remind customers about what else they may need to buy such as paint brushes, drop sheets and paint trays for their planned project.

Think about what you can add to your existing products or services to increase the average sale value and overall profit margin. Retail service models have many examples that reflect this multi-tier sales approach. Asking the customer if they need a new tie to match their new shirt, promoting golf accessories with a purchase of a set of clubs, or offer a wheel alignment with a car service. Every business will have similar opportunities to upsell and increase sales. Make sure you review and compile a checklist of items that you could cross-sell and help your sales team ‘sell’ them to your customers.

Consider how your website currently interacts with your customers. With your website and shopping cart think about making product recommendations using terminology like ‘Customers who bought this product also viewed these’. Profiling products that other customers purchased can increase your average sales values.

Bundling Complimentary Products/Services – Combining several products/services together in a package deal may be viewed as more attractive and create extra value for the customer. Consider how you could bundle complimentary products or services that cost less than if they were purchased individually by your customers. Take some time to identify any opportunities to bundle them together to make an even more attractive offer to your customers.

Exercise caution on arriving at your bundled price. The bundled price needs to sufficiently drive-up total net sales and net profits to truly be effective. A lower bundled price needs to be more than offset by increased volume and net profit margins realized.

Pricing, Margins and Discounts – Before you package items together or cross sell to increase your average sale value you need to know your profit margins realized on every single product or service you sell. By going through this process, you will be able to assess if it’s time to add new products or services with better profit margins. This will also allow you to assess if it’s time to stop carrying low priced, low margin items.

Be careful if you plan to explore price discounting. If the current average profit margin realized is 25% and you reduce your prices by 10%, then to generate the same profit your volume of sales must increase by almost 50%. By contrast, if your current average profit margin is 25% and you increase your price by just 10%, your sales of this product can drop by nearly 30% before your overall profit falls below the original profit margin level.

Develop Tiered Selling (Up-Selling) – If your business offers similar products of differing qualities and values, how can you entice the customer to purchase the more expensive product or better profit margin product. For example, your base product line might target the budget conscious buyer, a middle tier line may be your most popular, and your top end line is targeted for customers looking for extra value and higher quality. How can you encourage customers to move up your product line chain so you can realize increased net profit margins on a sales transaction. You will need to train your sales team to not only outline the features and benefits of these options to your customers, but also how customer communication techniques can be used to encourage customers to spend more.

Effective Merchandising – You can potentially increase average sales if your signage, presentation and point-of-sale displays are strategically placed around your business. Consider displaying certain products at the checkout area to trigger impulse sales to purchase those extra items.

Establish Minimum Order Quantities for Free Shipping or Bonus – This can be an effective means to increase your average order value by offering customers an incentive to spend a minimum amount by giving a gift or bonus when they spend a certain amount. Consider setting a minimum order amount to access free shipping. Customers will potentially look to purchase more thus increasing your average sales value to that customer.

Create a Customer Loyalty Program – If you sell consumable products (that customers need to replace at regular intervals) consider implementing a customer loyalty or rewards program. These programs are a customer retention strategy designed to keep your customers loyal to your brand and increase the average order value. By providing an incentive to your customers, this should encourage them to increase their average order value.

In summary, your existing customers trust you and they will consider purchasing other products or services from you. They provide a great opportunity for your business to cross-sell other products and services. Studies have shown how customer loyalty continues to be a key driver of long-term business profitability.

Consider implementing some of these ideas in the coming months to enhance your customer’s experience with your business and improve your bottom line profits.

In the meantime, stay tuned for our 4^th and final article on the 4 ways to Grow Your Business.

Still Have Questions About Growing Your Business?

If you are thinking about or currently working on growing your business, and need assistance, please contact Rick Gendemann, CPA, CA , one of our business advisory leaders. We look forward to the opportunity to connect with you to discuss your business and address how we may be able to work with you on developing and implementing your business sales strategy action plan.