Many business owners want to be more effective, efficient and increase their revenues at the same time. Increasing transactional value is one strategy that companies employ actually to do this. But what does increasing transactional value mean? Simply put, it means increasing the buying frequency or getting people to buy more often at the time of sale, not after. On today’s podcast, Doug C. Brown will tell you exactly how you can do that, going through the merits of upselling, cross-selling, and down-selling.
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Increasing Transactional Value To Increase Revenue
We bring you sales strategies that have been employed with companies who have grown larger than $5 million all the way up to billions. We share those strategies and the reason we do this is that every size company can use these strategies. It doesn’t matter whether you’re a startup or a $5 million company or a $500,000, $50 million, $500 million, or $5 billion company. These strategies will apply across the board. I am doing what’s called a solo episode where I’m not interviewing someone, but you get to hear me. We’re going to talk about increasing transactional value. I’ll get to that. Maybe if you’re thinking like, “Does this apply to me?” Maybe you’re frustrated by your average order size. Maybe you want your order size to be larger when you’re selling or possibly you want to make more per sale, but you want to work easier.
For example, maybe you want less clients, but you want to have more money. We’ll talk about increasing transactional, or maybe you feel tired with all the sales efforts you’re putting in, but you want more. You want to be more effective, efficient, and you want to increase your revenues at this at the same time. Increasing transactional value is one strategy that companies employ actually to do this. What does that mean by increasing transactional value? What that means is you’re getting them to buy more at the time of sale. It’s not after the sale. If you sell something after that sale, we’ll talk about that in a future episode, but that’s increasing the buying frequency or getting them to buy more often. It’s at the time of sale.
You’re getting them to buy something more expensive. Maybe that’s a better model or a better product, or maybe that’s the same model with better features that has a higher perceived value. One of my favorite stores is Whole Foods, and they’re a master at doing this. You can’t walk out of Whole Foods without investing more than you would at your regular grocery store. Why? The perception is it’s a higher value food and how do they do this? In most Whole Foods when I walk in because I think they’re geniuses, so I look at what they’re doing. When I walk into Whole Foods, they’ll walk you right into usually the produce section.
The first thing that I usually see is I’ll see flowers and then I’ll see strawberries, blueberries, raspberries. When I go in there, I take a look and I say, “Great. I need some strawberries.” I look at the strawberries and let’s say they’re $5.99 for strawberries. Right next to them is the organic strawberries, farm-grown on an organic farm. I don’t want to get into an argument with a nutritionist or anybody, but a lot of people say, “Organic doesn’t matter anymore. It used to matter more. It doesn’t matter as much.” Others would say, “It doesn’t have the pesticides. It doesn’t have this. They grow them in a different way.” When it comes to meats, “It’s more humane. It’s more of this and that.”
If you look at the regular strawberry price of $5.99, and then the organic strawberries of $6.99 or $7.50, a lot of people, including myself, have leaned toward increasing the transactional value, getting something more at the time of sale by investing in organic strawberries, not only did I invest in the organic strawberries. We’ll talk about the next technique. I’ve also invested in other organic products at the same place at the same time. They’re increasing the transactional value and they do a good job at doing this. Let me give you another example. Maybe you go to an auto dealership.
In the auto dealership, they have this base model and you want that model so they show you the model, but it has a four-cylinder engine in it. It has fuel economy, but when you step on the gas or petrol pedal for those folks in Europe and beyond the United States, you step on that pedal and it doesn’t have quite the pickup that you’re looking for. It takes a long time to go from 0 to say 60. It’s because it’s a four-cylinder engine. However, what else do they have? You go back to the dealer and you say, “It’s pretty good,” and they go, “We’ve got this model here, the same model, but it has better features, but what does it have? It has a six-cylinder engine in it.” Now that the six-cylinder engine gets almost the same fuel economy.
It has this higher perceived value because you get in it and you step on it and all of a sudden it’s like, “This one picks up fast.” You get thinking in your head, “I wonder what the eight-cylinder will be like.” You start actually upselling yourself into the process because you’re getting the perceived features. You can do this with clothing. Clothing, for example, might have the same model jacket, but one has an interior fleece lining or something like that. It has a thermal lining. If the jacket is, let’s say $100, but the one with the upgraded thermal lining happens to be $139. A lot of times you’ll upgrade to the better model.
I did this for one of my clients. I sometimes help install sales teams for them. In the process, we’ll either continue to do their sales, or I’ll get in there and figure out what’s going on. I had a training client and they were selling a Bootcamp for $2,500. When I took the call, I got speaking with somebody, but we ended up going from a $2,500 sale to a $17,500 sale because we took them from a Bootcamp to a coaching program. They had spent the same amount of marketing money. This is what I want you to get. You already got the client in the door.
You’ve invested money to get them there. However, now you can increase the transactional value by increasing what is called upselling. Some can argue, “This is a sales technique.” It’s part of a sales technique but all business is about selling the client acquisition. Increasing the transactional value is getting them to buy more at the time of sale. You can do this by upselling. You can also do this by cross-selling. What is cross-selling? Cross-selling is getting them to buy something complementary and related to the particular investment that they came in to get.
It’s more add-ons to the sale, but they’re related and it’s at the time of sale, one initial purchase. Let’s take manufacturing, for example, let’s say you’re selling extruders. If you don’t know what an extruder is, you might want to put that up in your Google and check that out. It’s a machine that actually we used to do. I worked for a plastic extruding company and they had these big machines called extruders. Maybe you’re selling the extruder but what can you add with the extruder? Maybe an installation package. They can install it themselves.Business is about selling, the client acquisition. Increasing the transactional value is getting them to buy more at the time of sale. Click To Tweet
You can install it for them in the training business, for example, you could do it yourself or we’ll do it with you. It’s that type of thing. Maybe it’s an installation process or maybe it’s a screen pack. Extruders need parts. Maybe you’re selling a screen pack or a filter, or maybe you’re selling a table that is complimentary to the extruder and makes the worker’s job easier or maintenance easier. You’re adding on each additional service and you’re charging for that particular service. Electronics, one of the things that people would recognize right away is cameras. When the camera let’s say, if they’re intelligent about cross-selling and increasing their transactional value, they will do this.
They will say, “What about a memory card? What about a case? What about a stand? What about a gimbal?” That gimbal is the thing that people hold out in front of them and the camera will rotate around them and they can actually look like they’re in a cinematic movie while they’re walking, all of those are extra parts. In the music business, for example, let’s say somebody comes in to buy a guitar. What’s related to a guitar? Strings, a tuner for the guitar, a soft bag, a hard case, maybe a neck adjustment for the guitar twice a year. When I worked in telecommunications, we used to do this all the time.
The average order in the company at the time was $1,500 recurring monthly revenue. My average order was $3,500 recurring revenue. Why? It’s because I used exactly what I’m telling you about upselling. I use cross-selling like a master and not to be braggadocious, but it works when you do this. In telecommunications, we would sell, say, local service. That’s also known as dial tone, but we would also bundle in. At that time, it was in-state long distance. We would then sell interstate long-distance from state-to-state in the United States. We would sell international services.
These were all ad-ons because some people, “I only call internationally every once in a while.” “Great. Let’s activate international service for you.” As soon as they made a phone call, at that time, it could be $0.50 a minute to make an international call. Data, back in the days where data was a single thing that people wanted, but it was more of a luxury item. A lot of people, because they bought the local, the long-distance, and the international, would actually add data to their package. We would do email, we would increase hosting for their website or their email hosting.
We would give them extended warranties, which we’ll talk about in a little bit on their equipment. We might even have a phone system because they needed a new phone system. You could cross-sell right into the phone system. That’s called cross-selling and anybody can employ that or the upselling process. The third way of doing this is what is called downselling. Now, downselling is they want something from you, but maybe they can’t afford what the higher offer is or maybe they can’t see that. For example, in real estate, they do this a lot. Real estate, they’ll show you the five-bedroom home and you walk in and you go, “This place is amazing.”
Let’s say the price point’s too high. Guess what they show you next? A four-bedroom home or a three-bedroom home, or a condominium or fractional ownership on something where maybe you need it seasonally. You’ll buy part of the year. They are getting you to get something, to establish the relationship, or to get you to buy something of less cost to start the process. Other companies will use things like a dollar trial. Let’s say SaaS companies, for example, you’re looking and you’re like, “I need this, but I’m not sure.” “Take a 30-day $1 trial.” “That’s not that big of a deal. I’ll do the $1.” It’s in hopes that they build the relationship. You then could have discount incentive programs.
You can have all kinds of things but think about it this way. “How am I increasing the transactional value of getting more at the time of sale? They’re walking away.” You’ll get nothing. Anything at that point is better to establish the relationship because if you do a great job, you can upsell them. You can sell them again on another transaction so you can get them to buy more frequently. There are all kinds of ways of doing this. What I want you to get is increasing the transactional value is around upselling, cross-selling, and downselling. Within that, there are different ways of doing this.
Let’s go back to extended warranties. One of the things you’ll find a lot is people you go into Staples, for example, or any office superstore and you buy a printer. If they’re smart, which most of them are, they’re going to say, “Let’s sell you some extra ink. This only comes with a starter cartridge. The ink is the only X and you’ll probably need this. How many pages do you print? Do you know?” “Yes, I do this many.” “Great. You probably going to need this amount of ink over the next several months.” They’re trying to get you in a cross-sell at that point to invest in something.
They’ll tell you all the time at the time of purchase, “Why don’t we put a 2, 3, 5-year warranty on this? Anything breaks with the printer and this is what can go wrong. The printer head could happen to be this or electricity surges, whatever we cover you 100%. Not only we cover you 100%, but if we don’t have that model, we will actually give you the newer model that’s out of equivalent value.” A lot of companies will use extended warranties. Think about when you’re cross-selling or upselling or even downselling how you can extend the process of keeping the client. We’ll talk more about this on another episode, but extended warranties are a great way of doing it.
Another way of doing upsell, cross-sell, downsell, especially on the cross-sell, and you can do this with a downsell is what’s called bundling. Now bundling is putting everything together as one package. If you’re going to use bundling, make sure your profit margins are what you want. You want to add things in that have increased profit margins, if at all possible. McDonald’s does this like a master. They have the primary thing called the Happy Meal. If you went to McDonald’s, I don’t eat there anymore but when I was younger, I used to. They have 3 items in 1, the hamburger, the French fries, and the soda pop let’s call it Coca-Cola, so everybody knows what it is. I want you to understand something they’re putting this together for one price.
Perception is, “I’m getting a great value here,” but did you know it doesn’t cost much, especially from the tap, where they use soda. Let’s call it soda, pop, tonic, whatever you call it. In this case, Coca-Cola. It might be a few pennies actually to fill a Coca-Cola in a cup. However, the perceived value is high because you’re getting the bundle together and you don’t even think about the profit margin on a hamburger or what’s on a French fry or what’s on a Coca-Cola. You don’t think about that at all, because you’re just buying it for one price. They’re bundling it together. You can do this with maintenance programs. You can do this with all kinds of things.
If you sell boats, for example, you might bundle in, “A year’s worth of slip.” What slip? That’s where you put your boat on the water, on a dock and they might bundle all of these things in, maintenance, waxing the boat. There are all kinds of services that you could put in. Remember, this is all at one time of sale. Watch your profit margins, because you don’t want to put something in where the profit margin starts dropping because you’re bundling things because they’ll buy things, but you’re not increasing the actual profitability at that point, even if you’re increasing the transactional value. That’s one way of doing it, but be careful again about margins.
Speaking about McDonald’s, let’s go back to them because they started this that I know of anyways. When you drove through any fast food restaurant, McDonald’s originally, but you drive-through any of them, what are they trying to do? They’re trying to increase their transactional value by either upselling you or cross-selling you all the time. How does McDonald’s do it or Burger King? You drive-through, they’re going to ask you a question. “Would you like to biggie size or supersize your order?” What does that mean? You go from, let’s say a 20-ounce Coca-Cola to a 40-ounce Coca-Cola when you supersize or biggie size. Here’s the bottom line. It costs them a couple of pennies to do that on average.
I don’t know exactly in 2021 the exact cost, but trust me, it’s pretty low. My family used to have a restaurant and I knew it was $0.3 to deliver a Coca-Cola. In McDonald’s case, where they’re buying this stuff in volume and in bulk, it’s probably even less, but I don’t know with McDonald’s specifically. However, I do know the concept works that if you’re going from a 20-ounce to a 40-ounce, let’s say it costs you an extra $0.5, five pennies in the United States, but you increase that average size order by $1 or $2. Profits high, you increase the transactional value. Bundling, upselling, cross-selling work great and so does downselling. If you drive-through again, Dunkin Donuts. You wanted something, but they don’t have it. They should suggest something that’s either related or at a lower investment, so you don’t drive off. That’s called downselling.
That’s it. Thanks for reading this blog. If you enjoyed the show and found it useful, please like it, subscribe to my channel. If you would, to hear more about sales, revenue, growth insights, and also please comment, send me questions, let me know your thoughts. As well as what you’d like to see on upcoming episodes and I’d be happy to accommodate. Until next time, go out, increase your transactional value, increase your revenues and make it a great day to your success.