Are you charging a fair price with growing profit margins?
Do you know what is your target margin based on percentages for profit margin, over heads, sales and promotional and R&D for innovating new product or service lines? Chances are too few of us actually have these figures with full financial clarity and on the top of our business minds. If you are a linear thinking as I am, the next thought process from someone who is a generalist in accounting, would incite the common statement ‘to increase our profit margin, and to simply reduce overheads and cut expenses”. But you and I know, ‘business as usual’ or common practice does is sustainable if you want to provide growing value to your clients and be relevant in changing marketplace.
Not charging enough is the main reason small business don’t make an acceptable profit. You are not in business to match the price of your competitors set you are there to look after your customers and make a profit.
To increase the value of transactions, you need to improve your gross margin, the difference between the price of your product and whatever it costs you to buy or make it. You may not be able to buy at a lower price, so your selling price is a critical variable.-Source ‘Know your numbers’ -By John Dazley – B.Bus, Chartered Accountant.
Do your eyes glaze over when you hear a term like ATV (Average Transaction Value)? It sounds quite complicated, like something an accountant would throw around when trying to bamboozle you. But it is actually a simple concept. Here we discuss some ways which you can increase your average transaction value, your profit and grow your business.
What is Average Transaction Value?
Now you know ATV is important, but do you actually know what an Average Transaction Value is? Put simply, ATV is the average dollar amount that a client spends with you in a single transaction.
You can calculate your ATV by taking the value of all transactions completed within a specific time frame (like a month) and dividing it by the number of transactions completed. This will give you the average amount of each transaction within that time. The higher the ATV, the more income you would generated per transaction.
Why is your ATV important?
It can be difficult and expensive to constantly attract new clients to your business. And once you have attracted them, you need to convert and keep repeat customers or entice them into a service contract. Remember the 80/20 adage? That 80% of your most valuable clients require 20% of your efforts. The challenge and strategy is to find and keep these high value customers.
What if there was an easier way to increase your profit?
By increasing your ATV with each customer, you will end up with a higher return on the investments you have made in sales and marketing costs. Therefore, you will see an increase in the bottom line and more dollars in the bank.
Eight ways to increase Average Transaction Value in your business
- Cross and Up Sales. Know your customer’s product selection and offer them other similar items of higher quality at the purchase stage. Show the customer that spending a few extra dollars on excellent quality items (or services) gets them more value for their money.
- Flexible Payment Terms. Offer payment options for large purchases. This can be in installments or phases without interest charges. It will encourage customers to purchase more of what they need.
- Package Services or Products. Offer an additional item to compliment the main purchased product. Bundling popular products (or services) with less desirable items under one price tag is a proven technique that is hard for a customer to pass on. Incremental profits can increase by selling complete solutions. This is a win-win transaction for you, and your happy customers.
- Bulk Purchase Incentives. Increase the minimum purchase size on items your customers buy periodically. Offer an advantageous and attractive prize for bulk purchases on a monthly, quarterly or yearly consumption. Customers who appreciate this extra added value are most likely to populate your loyalty list, and in turn increase your Average Transaction Value.
- Periodic Sales Challenges. Create sales challenges periodically by product, service or location. Focus on pushing hard-to-sell items in certain periods. Review your inventory and promote non-moving items upfront. Train your sales staff to be aware of sales patterns and to strive for your target sale value.
- Increase Your Price And Profit Margins. Offering the cheapest services or products just to vie for market share is not going to lower your overhead expenses. Start your pricing on the high side and determine how you can offer more value to justify the offer. Increasing your prices means giving better service, or higher quality products than what your competitors offer.
- Repackage your Services or Products for Higher Market Positioning. This will put your business a notch higher in the prestige ladder and reinforce your business as a reputable brand. Add value and attract more sophisticated buyers by creating high roller packages. If you are good at what you do, raising your market position entails more qualified customers that will appreciate and respect what you do. Eventually they will fill your loyalty list and refer you to clients at that same high level.
- Increase Visibility of Services or Products. Make sure to display a full range of your services or products, and the other related items that you offer. Customers are likely to think of you when you least expect it. Set up a powerful matrix to showcase all your available items and educate your customers to use the full range of services or products.
Make a Plan
As a startup, you have two options for business growth. Either try to increase the volume of your sales at a low cost – this works well if you are a subscription based business – or offer your services at a higher transaction value.
Boosting the value of your sales will boost your bottom line and cash flow. Start by determining the value of your average transaction before drawing a plan of action. You may want to calculate your ATV by the day or week, the sales agent, the campaign ads or any other variable.
If your business is well established then you have a legacy of trust and expertise in your field. This gives you the power to increase your individual transaction value, as people will be willing to pay for your expertise.
This means that you can build a set of strategic, well thought through actions to create more value for all stakeholders in your business; including your customers, staff, investors and community groups that it contributes to.
Are you now inspired to foster a more innovative approach to delivering your services which will generate a higher value business offering? It is time to be proactive, rather than reactive.
Increasing both the number of clients and the Average Value of each client’s transaction is the quickest (not necessarily the easiest)way to reach your target goals. With less effort and less expense, success lies in great product positioning and thoughtful actions to increase each transaction’s value.
Share with us with a comment on which strategies you would be most likely to implement and how would you measure success in your efforts to increase Average Transaction Value.