Getting Customers to Spend More

How do you increase the value of each transaction? In other words, how do you get the customer to spend a little more each time they buy from you?

Notice that we didn’t say, “raise prices.” That is but one possibility to get more money from your customers on every transaction. At Next Level, we call these strategies Pocketbook Strategies. Pocketbook Strategies are designed to increase the amount of money you have at the end of every sales transaction. They look at increasing both profitability and total revenue on each transaction.

The accountants would argue that Pocketbook Strategies are nothing more than ways to increase Gross Margin. They are correct but Pocketbook has more marketing pizzazz. One traditional approach to increase gross margin on sales transactions is to cut costs. This helps profitability but doesn’t increase revenues simultaneously.

Raising prices seems to do both but may result in a declining number of sales. The price elasticity of your customers must be considered. So what is Pocketbook Strategies then, if these aren’t the right answers? Pocketbook strategies are “extras.” They are the “You want fries with that?” approaches to getting more money from the customer.

First, let’s start by looking at each type of transaction your business renders. Instead of looking at what gets billed/charged, let’s look at what is not getting billed, charged to the customer. What costs are being absorbed that do not directly relate to the product/service?

The banking and retail industries are great at separating out the extras and charging for these items outside of the basic price. Ever pay an ATM fee or a bank teller usage fee? The idea is to get as much money from each sales transaction as possible.

Let’s take a look at another example. Two accounting firms pursue a prospective customer. The work is to handle the personal tax return for both federal and state filings.

Does the ABC Accounting Firm file the tax return electronically? You bet, but they bury that fact in their fees. The XYZ Accounting Firm not only pulls it out as an extra charge but also makes it appear to be an added benefit. The result, XYZ gets $30 more on each transaction. Not much you think, but if the accounting firm did this for 1,000 customers, that’s an extra $30,000 in gross profit.

Is the $30 difference significant enough for the customer to change firms? Probably not. Both fees probably fall within the customer’s acceptable range. Since the customer perceives the prices as equal, XYZ seems to offer more (the electronic filings and the benefits faster filing may mean for the customer, especially if they get a refund).

Some customers may only compare the base price of ABC against XYZ. In this case, XYZ looks less expensive ($200 vs. $190 and $400 vs. $390). If this was a retail operation with published prices, XYZ may be seen as the lower cost option when in reality they bring in more money.

The opportunities for Pocketbook Strategies exist in every company. Look carefully. What are your customers really buying? What do they see as extra costs that they must incur with the purchase but aren’t significant enough to change the basic buying decision? Pull these extras out of the base price.

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