Are you getting the most from every sale that you make? Focusing on your average dollar sale may be the key to giving your SME a boost.
You walk a fine line when trying to maximise the amount of revenue that you generate from each client.
On one hand, you want to earn as much as possible for each client interaction. A client who invests in several products or more expensive services benefits your bottom line.
On the other, it’s possible that you push too hard for more sales. If a customer’s come to you for one product, they may not be open to buying other products. Constantly hounding them to buy something else could lead to you losing the original sale.
Plus, you create a bad taste in the customer’s mouth. They might start advising others to avoid you. Your goal is to improve your average dollar sale. Thankfully, there are several proven strategies that can help you do that. Richard Patterson also outlines some helpful insight into how SME's can grow even in challenging economic times.
But before looking at those, it’s important to know exactly what “average dollar sale” means and why it’s important.
What Does "Average Dollar Sale" Mean?
Average dollar sale is a simple metric that helps you to determine how much you earn from your customers. Also referred to as “average transaction value”, it allows you to create average figures for sales over any period.
You just need to know two things:
- Total revenue generated over the chosen time period.
- The number of customers you sold to during that time period.
Divide the revenue by the number of customers and you have your average dollar sale.
For example, imagine that you’ve generated $125,000 of revenue for the month. During that month, you serviced 800 clients.
The calculation would look like this:
$125,000 / 800 = $156.25 per customer.
It’s an important metric to have because it tells a simple story. You’ll compare your average dollar sale against the price of your products to see how effective your sales efforts are.
Let’s assume that your average product costs $25. In this case, the average dollar sale above would be a great result. It suggests that you’re selling over 6 products per sale to each of your customers.
However, if your average product costs about $200, this suggests that you’re not maximising your sales efforts. Only some of your customers buy your $200 products. Others may only spend money on small products that drag the average down.
For example, you may sell smartphones for $200 and a range of accessories for about $10 each. A result like our example suggests you have more customers buying accessories than smartphones. This means your average sale isn't as high as you want it to be.
If you fall into the latter category, you need to figure out some ways to improve the average. These eight tips, all of which have proven results, will help you.
Tip #1 – Offer Add-Ons
This is one of the simplest ideas on the list. However, it’s also extremely effective.
The idea behind add-ons is that you offer the customer something else at the point of sale. This may be a better product or a product that they can buy in addition to the chosen product.
What’s important here is that you’re working with the client when they’re at their most receptive. They’re already going to buy from you. Now, you can try to get a little more from them.
McDonald's uses this technique to great effect.
McDonald’s realised that many of its customers order burgers or sandwiches without buying anything else. Thus, they trained their staff members to ask two key questions:
- Would you like fries with that?
- Would you like a drink with that?
The customer may not have had any intention of ordering a full meal. But the question raises the possibility when the customer’s at their most receptive.
It works. McDonald’s estimated that this simple add-on technique added $28 million to the company’s revenue in 2014.
The key here is that you don’t push too hard with the additional offers. Ask the question but don’t dwell on it. Social media can also prove to an effective tool in effectively targeting the right offers to a specific group within the market. Read our top five tips for effective social media selling here.
In McDonald’s case, many of their customers will say “no” to fries or a drink. The server will move on and process the sale regardless. But by asking the question, they’ll tempt some people to buy a little extra.
These extra small purchases add up to a higher average dollar sale over time.
Tip #2 – Increase Your Prices
A lot of small business owners balk at the idea of increasing their prices. This is especially the case if they have an established client base.
Your customers have gotten used to a certain price. Raising it now might anger them and cause them to leave. Plus, it might dissuade new customers from considering you as a service provider.
That’s the fear that many business owners have. But the truth is that your products and services often offer more value than you realise. Plus, the price isn’t usually the main influencer in your customer’s decision-making process.
In fact, Oracle’s 2011 Customer Experience Impact report says that 86% of people will pay more if they believe they’re getting good service.
As such, a good pricing strategy is a crucial part of raising your average transaction value, as Starbucks shows us.
Starbucks is one of the world’s largest coffee chains. It’s achieved that status because it offers a quality product at an affordable price.
However, it also recognises that raising prices appropriately can help it to improve its average dollar sale.
In July 2013, the company increased its prices by an average of 1% across all of its products. This is despite having recorded a 25% increase in net income the previous year.
Some may believe this to be a sign of greed on the part of the company. But it paid off. In 2014, they enjoyed another 25% increase in net income. And this came despite slower sales growth than the year before.
The key here is that you don’t increase prices to the point where customers don’t believe they’re getting value for their money. A 1% increase doesn’t cause much of an issue for the average Starbucks customer. However, it makes a huge difference to the company’s average transaction value over the course of a year.
Tip #3 – Set a Minimum Price
Sometimes, a business can do a lot of work while still losing money. This is often the case for businesses that struggle to grow from the “new business mentality”.
When you’re brand new to business ownership, any sale is a good sale. It doesn’t necessarily matter if you generate a good profit from the sale. What matters is that you’re generating sales at all.
That mindset might work early on when you’re trying to build a reputation. But it isn’t going to help you to grow a business in the long term. And it will lead to your average transaction value suffering.
That’s what ActionCOACH client Property Repair & Maintenance (PRM) discovered.
PRM provides a range of property maintenance and care services in Perth.
However, the company soon found itself carrying out a lot of low-value jobs. This took valuable time and didn’t generate much of a return.
They came to ActionCOACH business mentor Ian Lane for advice. He helped them to set a minimum price for the jobs they’d take on.
PRM got rid of all of the busywork that lowered their average sale. They’ve enjoyed a 220% increase in net turnover since they began working with Ian.
As your business grows, it’s important that you stop working with low-value clients that don’t fuel further growth. By setting a minimum price for your services, you get better-qualified clients who’ll raise your average transaction value.
Tip #4 – Implement KPIs to Incentivise Your Sales Team
A little competition is a good thing when it comes to sales.
Setting targets can motivate your people to push a little bit harder to achieve more sales. The idea here is to create some friendly competition within the team.
Your key performance indicators (KPIs) will help you to set appropriate targets. For example, you can use the average amount you hope to earn from a sale as a KPI. Then, you can create targets for your team that will help them to achieve the figures you’re looking for.
ActionCOACH client First Class Accountants used KPIs to good effect.
First Class Accountants found themselves struggling due to a limited belief system. The owner, Renae thought that her people couldn’t do the tasks that she did every day.
This led to the business stalling at an annual revenue of $120,000. That’s when she came to ActionCOACH business coach Phil Badura.
Phil helped Renae improve the confidence she had in her team. He also helped her to create KPIs that would help her to track performance and set sales targets.
In just over a year, First Class Accounts has quadrupled its annual revenue.
Set targets for your team and reward them when they achieve those targets. Setting KPIs is just the start. Using them as a means to create targets to incentivise your team will help you boost the revenue you get per customer.
Tip #5 – Cross-Sell
Many confuse cross-selling with offering add-ons.
In the latter case, you’re asking the customer to buy further items on top of the original purchase. With cross-selling, you offer a product that complements a product the customer has already bought. But it’s from a different category. Thus, you may have to work a little harder to achieve the sale.
For example, a customer may buy a set of hair straighteners from you. You could offer a comb or a hair treatment to cross-sell products that complement that purchase.
This is something that online retail giant Amazon does to great effect.
Since its founding as an online bookstore in the 1990s, Amazon has grown into one of the world’s largest companies. Today, you can get almost anything from its online retail platforms.
You’ll see cross-selling in action whenever you buy from Amazon. For example, you may purchase a book using the platform. As you proceed to the checkout, Amazon will recommend other products related to that book. For example, it may recommend a film based on the book or a collectable figurine of one of the characters.
The idea is to get the customer to buy one more item that they may not even have known existed. Thus, Amazon increases its average transaction value.
It’s a technique that the platform has put to good use since the early 2000s. It doesn’t routinely make its success with the tactic known. But Amazon founder Jeff Bezos revealed that cross-selling accounted for 35% of Amazon’s sales back in 2006.
Those are all additional purchases that someone made after going to the platform to buy something else.
Tip #6 – Train and Upgrade Your Team
Does your team understand the importance of raising your average dollar sale?
Often, you’ll find that your team doesn’t put these strategies to good use because they don’t understand why they’re important. They’ve already made some sales, so why do they need to focus on anything else.
That’s a dangerous mentality for your team to have. As a business owner, your goal is to train and upgrade the team to understand your business’ goals.
That’s what the founders of Junglefy did with the help of ActionCOACH.
The team behind Junglefy came to ActionCOACH with a desire to improve their sales processes.
They worked with business mentor Andrew Laurie, who helped co-founder Hanna upgrade the team. With the hiring of a new General Manager completed, Hanna could then focus on establishing defined sales processes.
Using these processes, she could train her sales team on how to achieve more. The company’s average transaction value went up. The result was a revenue increase of $5 million.
Now, the company’s planning an international expansion.
Bring the right people into the business to take the pressure off your shoulders (here is a quick guide on everything you need to know about building a great team). From there, develop a defined sales process (find out more on how to create one for your business here) that’s focused on improving your average dollar sale. Use this to train your people and upgrade your team’s capabilities.
Tip #7 – Simplify Your Pricing Structure
Sometimes, the complexity of buying from you can make customers less willing to invest more in a purchase.
This is often the case for tech companies. You may offer all sorts of different packages, which overcomplicates the process. Buyers go for the lower-priced offers because they’re scared of the complexity.
Server Density found that simplifying its pricing structure helped it to boost its average sale.
Server Density offers a server monitoring service. Originally, they operated a complex model that saw clients get bigger discounts when they paid for more servers.
The problem was that this was a confusing model. Customers didn’t really understand how the discount scheme worked. Thus, they hesitated at the idea of paying for more servers.
The company opted to create a three-tier system to simplify things. Some of its smaller customers dropped off. However, it saw a big increase in the average dollar sale.
With the original pricing, they added $420 to their monthly revenue from 2,161 visitors.
Despite the new model attracting eight fewer visitors, they added $876 when they put it in place.
That’s more than double the previous average dollar sale.
It’s one of the first rules of selling. Make things as simple as possible for the customer and they’re more likely to buy from you.
Tip #8 – Position Yourself at a Higher Level
The quality of your product is a branding tool. But you can’t use it that way if you’re pricing yourself at the same level as your competitors.
When you do that, you’re telling customers that you offer the same level of quality.
The truth is that you offer something much better. Use your pricing to demonstrate this fact.
Apple does this to great effect.
When Apple moved into the consumer electronics space, it did things differently from its competitors.
It positioned itself as a luxury brand. An Apple iPhone would cost you far more than a regular mobile phone. But for that money, you got much greater quality and could associate yourself with a slick new brand.
Thus, they didn’t compete on price. And this allowed them to keep raising their prices in line with this brand perception. In fact, the cost of the newest iPhone has increased by US$330 between 2016 and 2018.
People buy from Apple because they offer a quality product and a luxury brand. An iPhone is a status symbol in many respects.
Consider positioning your service in a similar way. Make it clear that you’re at a higher level than your competition and price yourself accordingly.
This covers just some of the techniques that you can use to raise your average transaction value. Each has a proven track record of working as long as you get the implementation right.
Found this blog useful? Here is another blog post that might help you out! Click here to read Are You Reading Your Profit and Loss Statements?