Business ProfitabilityThere are two ways to make more profit:
a) generate more revenue, and
b) lower costs (increase margin)
Every other ‘strategy’ will ultimately boil down to one of these two. Either increase the total, or increase your share of it.
The latter is a series of articles on its own – and a really good reason to have a great accountant! – but the former also deserves a lot of attention, primarily because it is often approached the wrong way in most businesses.
How to Generate More RevenueMany times, companies have a single strategy: pushing their team to make ‘more sales’. Obviously, you want to have a larger number of transactions happening, but the focus is then immediately shifted away from the two other factors that can greatly impact results: up-selling and client servicing. (For now, we’ll focus on up-selling, and we’ll revisit the client servicing in another post.)
Up-selling (which is known by multiple aliases) is getting a customer to purchase more than they had initially planned. The core focus is to increase basket value. If we can get the customer to purchase 5%, 10%, 20% more, it increases revenue without any additional investment in marketing – the customer is already there! If you doubt how useful this really is, consider this one example: for a clients’ business, the average transaction value went up by over 35%, just by implementing a structured up-selling approach. That means 35% more revenue, by implementing something in less than a week, and with no added expense.
Structured Up-Selling ApproachSo, how can you increase the value of a transaction? There are a few basic things you can do straight away:
- Create Management and Reporting Structures
- Increase Product Awareness
- Make the Effort
- Systemise the Process
1 ) Create Management & Reporting Structures:The importance of management and reporting of key metrics cannot be over-stated. In fact, this one step alone will make the difference in results, even if you don’t focus on anything else. A good quote to remember: What gets measured gets improved. If the average value of each transaction is tracked, it will probably start going up, just because of the additional focus on it.
Here’s how you can set the initial benchmark:
(total value of transactions) / (total number of transactions).
It’s not the best, but it’s an average across the board. If you have multiple distinct verticals/departments and you want to do this separately for each one, that’s fine too. Once the benchmark is established, it becomes the minimum goal for each transaction. This is tracked across all sales, and one of the learning sessions in your weekly meetings (you are doing weekly meetings with some time for learning, right?) can be on up-selling KPIs and strategies.
You may be very pleasantly surprised how well this ‘simple’ step can work.
2) Increase Product AwarenessOnce a lead has become a client (agreed to buy), the next area to target is increasing your wallet share. This is different to market share, and both are important to focus on.
Market share is the percentage of business in your industry that you are winning. Wallet share is the percentage of client budget that is being allocated to you (as opposed to your competitors).
Increasing wallet share is one of the goals of upselling. In addition to the management and recording of average sale values, there are certain strategies we can focus on to increase ‘basket value’.
Perhaps the first and foremost is client education. If the client does not know what she wants, or isn’t aware that you can do something else, she will not buy it from you. For example: a Company Director comes to an audit firm to get an internal audit done. She’s already convinced about the need for the audit, and that sale is completed. But before signing all the contracts and rushing to do the sale, the Partner at the audit firm asks if she has Standard Operating Procedures (SOPs) in place, that would maximise the efficiency in the company. She knew about it, and was going to find someone to do it…any chance the audit firm has an idea? As it turns out, the firm can do it for her, and once the audit is completed and areas to improve identified, the audit firm can create SOPs with a priority on the areas of weakness. The client is relieved that this can be taken care of, and the firm increases the value of the sale by 50%.
3) Make the EffortBy ensuring the client knows the range of offerings available, it becomes a lot easier to increase the basket size. Related to this is the second area of focus: making the effort. This is a common shortfall on the sales side, and has got to do more with ‘not doing’ as opposed to ‘can’t do’. I know what my product/service range is, and I know the typical needs of my client. All I need to do is ask my industry-equivalent of the famous question: “Would you like fries with that?” That small, innocent question (and the related ones around adding a drink and/or upsizing) has brought McDonalds over $28 million per year!
4) Systemise the ProcessOne of the simplest ways to implement this in the team is to have scripts and/or checklists in place. When a salesperson has finalised a sale, and before leaving, he can have a script that prompts him to say: “Just before we wrap up; typically, the clients who purchase this also have a few other requirements. Can I just run them by you real quick, and if there’s anything that you’ll need, we can get it sorted for you at the same time?” Most clients would be happy to spend another minute going over other potential needs they’d have – and many may even buy something extra. The 35% increase example I gave last week came from this strategy. As an example: I know the client will need to buy pet food if they’re buying a pet, and they’re going to get it from somewhere. What if I got them on a monthly retainer to have the right amount of the perfect food delivered to their doorstep each week?
Next StepsHere is a quick action point to implement: Do a pop quiz of your sales team. Do they know all the services/products you offer? Does your website list everything you can do? Does your office and/or store make it clear that there may be more things available than what is on display?
Consistent sales and revenue is one of the most crucial factors when it comes to building a high-value, high-performance business. However, it's not the only one. There are 3 other key factors that influence the value of any company - to find out more, download this in-depth e-book: 4 Keys to Driving the Value of Your Business
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