This article is published by Modoras Accounting (QLD) Pty Ltd ABN 81 601 145 215
Growing profit per transaction
Convincing your customers to buy from you is one of the greatest challenges any business faces. And once you’ve attracted a customer to your business you must carefully walk the fine line between keeping them satisfied, and offering them other products or services you think might add value or enhance their experience (and your bottom line). When it comes to increasing customer sales, many businesses struggle with how to approach existing customers. It can be hard not to seem pushy, after all, they’re already your customer, you don’t want to overwhelm them with choice or bombard them with offers. However, many businesses are in a position to benefit from selling extra (profitable) items or services to customers.
“Many businesses are in a position to benefit from selling extra (profitable) items or services to customers.”
Gross profit per transaction
If you’re a business with a range of products or services to sell, you’ll know some of them have a higher profit margin than others. Some are costly or time consuming to produce or provide, and customers might be more sensitive to price rises on some items or services over others. The best products or services for a business owner are those that are easy or economical to produce or complete, yet customers are happy to pay a price that includes a healthy profit margin.
Which leads us to the now famous McDonalds’ question “Would you like fries with that?”
In the 1970s, McDonalds wanted to take advantage of the high gross margin on its French fries. They were extremely cheap and easy to produce and their price point was both attractive to customers and profitable for McDonalds. To increase sales, staff were told to ask customers purchasing a burger if they wanted fries with their order. Burgers and fries are a perfect match. It made sense. It worked a treat. Half of them said yes and McDonalds’ sales and gross profit soared.
After their success selling more fries, McDonalds moved on to asking purchasers of small sized fries or drinks whether they’d like a larger size, increasing sales and gross profit per customer even further. Customers loved it, they felt like they were getting value for almost no further expenditure. And McDonalds continued to increase profits per transaction.
Arguments about the relative benefits of fast food aside, it was certainly an effective way to increase sales and profits.
Number of transactions multiplied by average gross profit per transaction is an important indicator of business performance. This is because increasing gross profit per transaction increases the gross profit of a business with no additional cost or overhead. The increase in gross profit goes straight to the bottom line, improving net profit.
Example: How could a café use this strategy?
At a café, once your customer walks through the door you want to ensure you provide excellent service to keep them coming back but also to assist in increasing the total transaction value. This leads to an increase in your gross profit without increasing your costs dramatically. The below are a few ways a café could increase their profit per transaction:
- Serve the customer their first coffee/drink as quickly as you can. This will increase the chance of the customer ordering another coffee or drink during their visit
- Offer additional add on drinks like bottled sparkling or still water
- Ask if the customer would like an appetiser
- Always ask the customer if they would like to see a dessert menu
So, are you ready to work on increasing profit per transaction? No matter how you plan to do this, as a business owner, it’s crucial to have access to good advice when it comes to changing your approach or making a decision to upscale.
For excellent business advice, contact Modoras on 1300 888 803. They are experts on all things business related. And they won’t ask if you want fries with anything.
Over to you
Do you upsell in your business? Does it work for you? Let us know in the comments.
Want to know more?
Learn more about how to set SMART goals for your business.
This article is published by Modoras Accounting (QLD) Pty Ltd ABN 81 601 145 215. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.
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