Do you, like me, sometimes choose the hardest path forward?
When it comes to growing a business, the default thought is (often) that we need to reach more people.
But is that the most efficient approach?
What if there were easier paths to growth (especially since it’s 6-7x harder to sell a new customer than it is to sell a current customer)?
Effectively, there are only three ways for a business to grow, each with myriad tactics:
- Increase the number of clients: Attract new customers.
- Increase the average transaction value: Encourage each customer to spend more.
- Increase the frequency of repurchase: Motivate customers to buy more often.
Consider these strategies from the perspective of serving your customers.
For instance, I love pizza and prefer a sparkling drink on the side with my order (though water would be healthier). Recently, non-sugary flavored sparkling water has become popular. And now I can get some carbonated drink without the added sugar.
When a pizza place doesn’t offer flavored sparkling water, I default to water, aiming to reduce my sugar intake (so, I spend less).
By giving me the option I want, the pizza place can increase their margins (and it’s a simple sale for them).
Also, if the pizza restaurant offers my favorite crust for an extra charge, I’m delighted to pay more.
It’s not just about them making more off of me.
Giving me what I want makes me happier, even if my bill is higher.
So, it’s a win-win.
NOTE: When you think of selling more and selling more often, do it with the customer in mind. There are always ways to serve customers better and make more.
This concept of upselling (selling more to existing customers) or cross-selling is not new.
Consider McDonald’s classic upsell:
“Do you want fries with that?” or
“Would you like to upgrade to large fries?”
Imagine a scenario where a business serves 200 clients, for $100 (average value); and each customer gets the service twice a year.
This gives us a basic formula:
200 clients x $100 per service x 2 times a year = $40,000 annual revenue
Now, consider the effect of a 10% increase in each growth area.
By increasing:
- The number of clients to 220 (a 10% increase)
- The average order value to $110 (a 10% increase)
- The repurchase frequency to 2.2 times a year (a 10% increase)
The business will se a 33% jump in the overall revenue (not 10%, but 33%)
220 clients x $110 per service x 2.2 times a year = $53,240
The compound effect of small improvements across these three growth levers is powerful.
But let’s push this thought experiment further.
How do you think a 33% increase in each of the three areas will impact the overall business revenue?
266 clients (a 33% increase from 200)
x $133 per service (a 33% increase from $100)
x 2.66 times a year (a 33% increase from 2) = $94,105 in annual revenue
The lesson here is profound yet simple:
Modest, consistent improvements across these areas can lead to exponential growth, not just linear growth.
Now, if you’re thinking: “I can’t increase my prices,” the order value is the average value you get per customers.
If 10 customers pay you $100 each, the average order value is $100.
If 9 customers pay you $100 and 1 customer pays you $400, the average order value becomes $130 (by selling a higher-ticket item or service, you can increase your average order value).
So, you don’t necessarily have to increase your prices.
You just need to offer a higher priced item or service.
If only 5% of buyers take you on the upsell per month, it will change your overall revenue significantly.
What are you currently doing to increase your business or organization in each of the three areas?
-Delia Ursulescu, Co-Owner