How to Dominate Your Market By Increasing Your Average Order Size

Today, I’m sitting here thinking about your business and how you can dominate your market.

Now, let’s assume that your business delivers a quality product or service.  My smallest consulting client (in terms of revenue) is doing mid-six figures and the rest are doing more and they wouldn’t be in that position if they didn’t make their customers happy, so I’m going to assume that your existing customers are happy with what you are selling and that there is a demand for your product or service.

Fair enough?  Good, let’s continue…

Now, if we are talking about how you can dominate your market, let’s also assume that you have competitors and that they deliver a quality product or service as well.

Given these assumptions, how do you dominate your market?

There are a number of ways to do this (and I talk about most of them on this blog) but today, let’s focus on something called your “Average Order Size” or your “Average Transaction Value,” which is the amount a customer spends with you during a single interaction.

This is different than “Lifetime Customer Value,” which is how much a customer will spend with you over their life as a customer.

Now, I’ll tell you how you can dominate your market in a few minutes, but first, we need to figure out how to increase the amount of revenue you’re generating in that initial transaction after a customer follows your ad and calls you or visits your web site.

How to Increase Your Average Order Size

There are two ways to increase your average order size:

1. Increase your prices
2. Sell more products or services after the initial sale

There are a number of ways to increase your prices while maintaining or even increasing your conversion rate (the percentage of people who view your offer and then buy).

Now, I do a lot of work with my clients to improve their positioning, which improves their customer’s perception of them while increasing the “intrinsic value” of their products and services. Think about it – you’ll pay more to go to a “specialist” or to a “leading expert” versus a “generalist” or “jack-of-all trades,” won’t you?

Positioning is essential if you want to substantially increase your prices.

But, increasing your pricing is just a small part of a much bigger opportunity.

Let’s focus on where the real revenue is – selling more during each interaction you have with a customer.

Now, let me illustrate how important this is…

I was recently listening to a group of 7 figure business owners and almost all of them told me they were selling multiple products on top of their entry-level product (which was a loss leader for many of them).  In fact, several of them told me they would actually lose money if their average customer only purchased their entry-level product…

Their entry-level products were loss-leaders designed to help them get new customers past the initial “trust hurdle” of pulling out their credit card.

You see, they know that some percentage of their market will gladly purchase a premium product instead of an entry-level product and some will gladly purchase additional products.  It’s Pareto’s 80/20 Principle in action.

If you’re not doing something like this, we should probably talk.

Now, earlier I promised to tell you why average order size is so important and “how” you can use it outmaneuver your competition, so here it is…

How Increasing Your Average Order Size Enables You To Dominate Your Market

How would you like to be able to “buy” the customers that would normally end up buying from your competitors?

Guess what?

You can…

If you can make more money per interaction (transaction), you can  afford to pay more to acquire a customer.

If you can pay more to land a new customer than your competitors can, you can “buy” more customers because you can afford a higher customer acquisition cost.

Let’s look at two scenarios to illustrate where you may be now and where you can go:

Scenario #1 (Where You May Find Yourself Now)

• Your initial customer acquisition cost is $20
• Average order size: $100
• Assuming a flat profit margin across your products of %30
• $100 sale x 30% margin = $30 – $20 customer acquisition cost = $10
• Amount available to acquire a new customer: up to $10

Scenario #2 (Where You Want to Be)

• Your initial customer acquisition cost is $20
• Average order size: $247
• Assuming a flat profit margin across your products of %30
• $247 sale x 30% margin = $74 – $20 customer acquisition cost = $54
• [highlight]Amount available to acquire a new customer: up to $54[/highlight]

My jaw hit the floor the first time I saw this when I first learned this years ago (maybe your’s is too).

You can buy a lot more advertising (PPC ads, postcards, direct mail, radio spots, etc.) for $54 per customer than you can for $10 per customer.

And, if your competition can only pay $14, you can outspend them on advertising, which will bring customers they may be getting right now, to you instead.

Now, assuming you are actively optimizing your sales funnel to maximize your conversion rates, which is something I do with my clients and something you should be doing as well, it’s game over for your competition…

You Win.  Market Domination Achieved!

Sounds good, right?  But, you may be asking…

“How Can I Sell More Products Per Transaction?”

There are three relatively simple tactics you can implement to make more money per customer interaction:

• Up-Sells
• Cross-Sells
• Down-Sells

 What Is an Up-Sell?

An upsell is a product or service that is essentially a better version of the initial product your customer is thinking about buying.

• If you’re selling a consumable product, like candles, you can offer 5 more candles for a discounted rate
• If you’re selling teeth whitening, you can offer whitening using the latest technology which does an even better job
• If you’re selling entry-level tires for $97, you can offer premium, speed-rated, rain channeling tires for just $197

If your customer goes for it, you just made more revenue (thus increasing your average order size).

What Is a Cross-Sell?

A cross-sell is often confused with an up-sell, so let me break it down for you.  The up-sell is a premium version.  The cross-sell is a complementary product that enhances the experience of using the primary product.

• If you’re selling hamburgers, french fries are a cross-sell.
• If you’re selling dental cleanings, teeth whitening is a cross-sell.
• If you’re selling tires, a cross-sell might be an extended warranty (extended warranties are a gold mine of profitability by the way)

What happens if 30% of your customers go for your cross-sell?  Exactly, you just increased your average order size.

If you do it right, your customer won’t mind the cross-sell.  Just follow these rules of thumb:

1. The primary product you are selling should work without an up-sell and without a cross-sell.
2. The cross-sell should compliment the primary product (in other words, it should make sense to offer it)

What Is a Down-Sell?

Let’s consider the tire business.  A customer comes in for an entry-level tire at $97.  You offer the premium tire for $197.  The customer say’s “no thanks.”

Now what?

Enter the down-sell.

“We do have a very good tire that’s more affordable that will last longer than the entry-level tire.  It’s just $27 more than the entry-level tire.  We’ve been selling a lot of them – they are very popular and we may have 4 left in the back. (pause)”

“Okay, let’s do that.” – cha-ching – you just increased your average order size.

What About Some Real Life Examples?

• Business Cards – I was sitting in a cafe in San Diego the other day when a VistaPrint commercial came on.  They were offering 250 full-color, double-sided business cards for just $10.  Obviously a loss leader.  How do they do it?  Go to their web site and experience it for yourself.  They have a ton of up-sells and cross-sells built into their sales funnel.  That’s how they were able to run TV spots during the middle of the afternoon (their additional sales per transaction generate a lot of additional revenue, which they can then use for advertising).
• Beach Body – Beach Body produces home fitness programs and is great at this.  One of their chief marketing experts recently told me  about their fitness DVD programs like P90X, Insansity and T25.  They run long infomercials on television.  Airtime isn’t cheap.  So, how can they afford to pay for so much airtime?  Easy, they are always optimizing their sales funnel and it’s loaded with up-sells (faster shipping) and cross-sells (supplements, pull-up bars, fitness bands, yoga mats, etc.).  I know more than one marketer who has bought a product from them just to study their outstanding sales funnel.
• Jiffy Lube – I recently stopped in for a quick oil change before heading out of town.  After being told to wait in the lobby while they inspected my car, I was called in to select my oil, and was first offered synthetic (up-sell), only to settle on a mid-grade oil recommended by the technician (down-sell).  Then, I was offered, and bought, their headlight polishing service (cross-sell) to make my headlights nice and clear.  By the time I was done, they had successfully increased the order size by about $32.

Getting This Right Is Part Art, Part Science…

I design a lot of sales funnels and I overhaul just as many and one of the biggest mistakes I see, other than not offering up-sells, cross-sells and down-sells, is something I call “Faulty Sequencing.”

Faulty Sequencing is where the up-sells, cross-sells, and down-sells aren’t structured or delivered in the right order or in the right way.  This is important because getting your sequencing wrong can either tank your conversion rates or in some cases, really make your customers angry.

You’ve probably experienced this when you’ve tried to buy a product only to offered 10 other products one after the other, which probably triggered a feeling inside of you like,

“&%$!  Can I just buy this thing already!”

The truth is, integrating up-sells, cross-sells and down-sells into your sales funnel is part art, part science (and if you don’t have a sales funnel yet, it’s time to create one.)

Which brings me to my final point…

If you’re going to add up-sells, down-sells and cross-sells to your sales funnel, which I highly encourage you to do if you want to increase your revenue and dominate your market, really think about the sequencing.

It should make sense and maximize your transaction value without irritating your customers.  If you need help putting this all together for your business, just use the form on the right and setup a call with me to get the ball rolling.  Either way, I hope you got a lot of value out of this and I’d love to hear from you in the comments below.