Business Coaching

How To Upsell Profitably - Understanding The Finance Logic

One of my favourite techniques for increasing profit is the upsell and cross-sell which increase the average purchase value for a customer.

Where these are often talked about together I want to look at upselling on its own and in particular at the finance logic behind how to upsell profitably.

What Is An Upsell?

An upsell is when a customer intends to buy one product at a particular price point but actually buys a higher priced, better quality item.

For example in Ford cars, you may intend to buy the Fiesta GL but you actually buy the Fiesta Ghia which costs an extra £1,000 more.

A cross-sell is selling a related, complementary product to enhance the use or value of the product. In the car example, selling optional extras fitted to the car is upselling but selling insurance is a cross-sell.

The distinction can get a little blurred so go with the principle of increasing the value of the sale.

The Ethics Of Upselling

Persuading your customer to buy an upsell will increase your profit but since you want to keep the customer coming back, you need to upsell ethically and put their interests first.

Customers are looking for a solution to a problem and whilst they may have done some research and think they know the answer, you are the expert.

What the customers ask for may not be good enough for what they want so you have a choice:

1. To let them buy the item they ask for even if it is not right for them - and you know who they will blame when they get disappointing results and have to buy again in a few months; or
    
   
2. To take the time to find out what they want, assess it and to educate them if necessary by correcting any misconceptions and to explain the benefits of higher priced models.   

Provided you are tuned in to helping the customer get what they really want, you won't be seen as a pushy salesperson and just as important, you won't feel like one.

Upsell Economics - The Financial Logic Of Upselling

The first thing to make clear is that the value you want to increase is the contribution or profit on the transaction and not just the sales value (see turnover is vanity profit is sanity).

The second is that the customer must get a good deal so the extra value they receive must be worth more than the extra price. The customer needs to see that at the time of the sale - because otherwise the decision to buy the higher priced item doesn't make sense - and continue to believe it after the sale.

An upsell is a win-win - you are happier and your customer is happier.

I am looking for a new video camera which I mainly use to film animals - my dog Gina, wildlife in the UK and most years we go on safari in Africa. Quality is important to me and in particular, I like a good zoom quality since the wildlife may not be as close as I would like.

I have also learnt that camera technology moves fast and a camera I buy now will be much inferior to a camera I could buy next year for the same money.

So I would rather spend £500 every two years than £1,000 every four years.

I go in to the camera shop and ask questions about the £500 camera (and we will assume that the shop makes 50% contribution margin). If I buy this camera, the shop will make £250 profit.

The shop owner takes the trouble to find out my thoughts and recommends a camera costing £700 (profit of £350) - i.e. he tries to upsell me to this more expensive camera.

I admire it and we do a little comparison film at 10 times zoom.

The difference is indisputable. I can see that the shop owner is right but I am reluctant to pay more than £500.

The upsell is under threat - whether the shop makes £250 profit or £350 profit hangs in the balance.

The shop owner can see that I am attracted to the £700 camera but he knows that he needs to sweeten the deal.

He has a choice of three options:

• He can stick to the choice of £500 or £700 camera and hope that I will buy the upsell
   
  
• He can offer me a deal on the upsell - a £50 discount of the price down to £650 will reduce the shop's profit from £350 to £300 but it is still more than the £250 available from the £500 camera.
   
  
• He can hold the price at £700 and offer to throw in accessories to increase the value I am getting, perhaps offering me £50 of fancy gadgets (I'm a sucker for flashing lights) and if they have a 50% margin, they will only cost £25 so the profit on the upsell is £325 (the £350 less the free accessories cost of £25)

I buy the expensive camera and go home and report that I got a great deal and the shop owner has made more profit by taking the trouble to match what I want to what he has available.

Simpler Upsells

Not all upsells are this involved or involve so much money.

A restaurant has the opportunity to upsell every day by enhancing the meal by offering extras and each extra course or drink means extra profit.

The classic MacDonald's questions are "Do you want fries with that?" when you order a Big Mac and "Do you want to go large?" Purists may say that the fries are a cross-sell since it is not a bigger, more expensive burger but it is an enhancement to the meal.

I am sure that MacDonald's have tested this question and it works best for them, but often a closed question which requires a Yes or No answer can create No answers when a more imaginative question would get a better answer.

A waiter in a restaurant may ask "Would you like to see the sweet trolley?" (or another bottle of wine or offer liquers) but a better question may be:

"We have three special desserts today, death By chocolate, strawberry and champagne cream gateau or lemon meringue pie (my favourite). Which would you like?"

By phrasing the question in the right way, Yesses may increase from one in three to two in three and if there is £2 of profit in each dessert, restaurant profits are soon on the increase because of the carefully worded upsell.    

What Are You Thoughts On Upselling?

Do you have a story to share on upsells, either as the seller or the buyer?

How do you feel during the process?


  

The Profitability Vice - Are You Being Squeezed?

I like word pictures and especially word pictures that relate to making more money so I was pleased to discover "The Profitabiliy Vice".

It's not my phrase but that of Lynda Roth of LJR Consulting Services, a firm that specialises in information technology, saving money etc - to be honest I'm not entirely sure because as is common in big company consultancy, I don't seem to understand the words used when put together in sentences.

But I love the idea of the Profitability Vice and wish I'd thought of it myself because many businesses are being squeezed by the pressures of:

• keeping customers happy when they demand more service, better quality and lower prices.
   
  
• finding suppliers who will reliably meet their promised commitments without holding you to a king's ransom on the prices they charge.
   
  
• employees who think that they are owed a good living, regardless of how well the business is doing or who perform well, expect bumper bonuses and then expect the bonus to be included into their basic.       

I hope I don't sound cynical but the Profitability Vice or Profit Vice (to make the phrase even simpler to understand), is what I see small businesses caught up in.

Instead of being master of all he surveys, the business owner is left being squeezed and buffetted from all directions (please substitue mistress and she if you prefer).

I discovered about Lynda and Profitability Vice through a Google alert on hidden profits (Lynda writes the Hidden Profits blog).

What's the answer for the entrepreneur caught up in the Profitability Vice?

You need to take actions to seize control of the forces which create the squeeze on profits working back from symptoms to underlying causes.

I'm biased but I believe that business coaching is the answer as it helps (forces) you to look at your business in a new way.

I keep defining business coaching as helping you to get from where you are to where you want to be and that is the basis for my Pillars of Business Prosperity approach.

The first stage of correcting a problem is seeing it and that's why I like the analogy of the Profit Vice. Business owners can hear it and recognise that yes, the are caught in the profitability vice.

Even worse they are being squeezed as the vice closes, costing them money in terms of past profits (never mind the missed hidden profit opportunities), driving them crazy with frustration and in the worst cases, even making people question whether they want to be the boss any more.

What Do You Think About The Profitability Vice or Profit Vice?

Let me know your thoughts on the profitability vice by leaving a comment - just watch for the sneaky captcha that stops the spam robots.

Do you recognise the analogy and feel that you are being squeezed in a vice - or perhaps you have been squeezed in the past but you have managed to break free. It would be great to read your story.

I have been caught in the Profitability Vice either personally or I've seen it happen a number of times. I hare the story of my worst case in the Beer Game - Systems Thinking Fights Back 

Profit Now 2009 Scott Hallman

When I held my webinar with Scott Hallman in January 2009, he announced that he was launching a new program - Profit Now 2009.

A few weeks ago, I was browsing the Small Business Growth Club website and I noticed that Scott has added ProfitNow2009 as a bonus if you join the Small Business Growth Club as a platinum member.

Then this morning I get an email saying that Scott will be one of the presenters at the prestigious StomperNet Live 8 event.

This is interesting as I see Scott and his Small Business Growth Club as the obvious competitor for the StomperNet / Paul Lemberg joint venture Formula Five which is being relaunched this week. Both are excellent and I make my views known on which to buy in what circumstances in my Formula 5 Review (on my StomperNet focused blog).

Profit Now 2009

I expect Profit Now 2009 to have a full blown launch in about six weeks but you get it as a bonus of Platinum Membership of the Small Business Growth Club and I don't know if that great deal is going to continue for long.

Here are the details that Scott has revealed about Profit Now 2009 on the Small Business Growth Club website.

"The ProfitNow2009 LIVE Tele-training program is a 16 week "Hands-On" training series where you will learn to dramatically increase your profits (8 actual sessions + detailed Q&A sessions).

You'll learn simple to implement proven systems to increase profits without spending a dime on advertising.

Plus, you will receive Virtual Coaching Tips from Scott every day in order to keep you on track and make sure you get results.

The 8 training Sessions Include:

• How to build dramatically to increase point of purchase sales

• How to lock in customers for life by following a simple 10 step system Scott used to retain 96% of his hospital clients for over 8 years

• How to increase the frequency of customer purchases

• How to create Active Referral Systems that motivate your customers to refer their friends and family to you

• How to Implement More Effectively...regardless of your experience

• How to get your customers to buy more of the items or services that you provide

• How to increase marketing and sales conversion

• How to prioritize your business opportunities, projects, and tasks so that you always are focused on the ones that will impact your business at the greatest level

• How to create strategic partnerships that increase your sales cost free

Each Module includes over 4 hours of "hands-on" Live training, including Q&A and Hot Seat Sessions."

It sounds great doesn't?

Coverage is similar to that available in the Small Business Growth Club but having spoken to Scott, the idea is to go into the areas even deeper.

Scott Hallman excels in the implementation of these profit boosting techniques and as a Platinum Member of the Small Business Growth Club, I am eager to hear the new ideas, strategies and examples that Scott will share.

Why Wait For The Profit Now 2009 Launch?

You can wait for the official launch of Profit Now 2009 (the Small Business Growth Club website indicates a $2,497 value) or get access to Profit Now 2009 plus the great resources in the Small Business Growth Club plus Chet Holmes' Mega Marketing & Sales program that is another bonus of the Small Business Growth Club.

Join the Small Business Growth Club

Disclosure - I am an affiliate for Scott Hallman and the Small Business Growth Club and if you buy after clicking on my link, I will be paid a commission. I am a paying member of the Small Business Growth Club having started in 2007. I am also an affiliate for Stompernet and Formula Five who gave me a free copy to evaluate and review.

Increase Your Marketing Cost Of Sales To Increase Profit

A few days ago I wrote a blog about how to reduce your lead generation costs and today I want to present a counter-intuitive next stage suggestion for increasing profit.

I want you to think about increasing your marketing costs of sales for one very good reason - do it right and you will make more money, possibly much more money.

Two Types Of Marketing

There are only two types of marketing:

• Marketing that you know works - and you can trace leads and sales back to it and calculate your costs per lead and costs per sale.
   
  
• Marketing that doesn't work or you don't know if it works or not -my assumption is that if you don't know, assume it doesn't work.

So no surprises with the first recommendation - do more marketing that works and stop doing marketing that doesn't work.

The point of the first article on marketing costs was to help you to improve the effectiveness of your marketing.

The better you match your message and choice of marketing media to your target market, the more effective will be your marketing.

Chuck Out Your Marketing Budget

Budgets are supposed to impose a limit on how much you can spend on an activity.

If you budget £10,000 for training and you spend more than £10,000, accountants will tell you that's bad - you have an overspend, an "adverse or unfavourable variance".

I can't argue about that but it depends on what you get for your money.

Good marketing - remember that is marketing that works by attracting leads who convert into customers and not the pretty stuff that looks nice - brings you more money.

So if spending £10,000 brings you £50,000 worth of customers and £20,000 brings you £90,000 worth of customers what do you do?

Do you act like an ostrich with its head in the sand?

The budget says we will spend £10,000 so we will only spend £10,000 - so it is goodbye to the extra £40,000 of customers.

Or do you say - "My business is about customers and profit" (see what is the purpose of a business) - "I'm going to spend the £20,000. In fact I am going to spend more than £20,000. I will keep spending until the marketing stops paying for itself."

Profit Maximisation And Economists

Ask an economist how to maximise profit and he or she will say profit is maximised when marginal cost equals margin revenue.

That means that the cost of the sale equals the money you get back from making the sale.

Increasing Marketing Costs To Increase Profit

In simple numbers

You buy for £6 and sell for £10 - you make a profit of £4 every time you sell.

You buy for £7.50 and sell for £8.50 - you make a profit of £1 for each unit.

You get the idea.

So if your average customer gives you £50 profit on the first transaction, £150 over the first twelve months and £500 over the average lifetime and your marketing costs show that:

• Customers coming from the Internet through natural search are free
   
  
• Customers coming from pay per click on the Internet cost you £15 but you get much wider word coverage
   
  
• Customers coming from direct mail letter 1 cost you £30
   
  
• Customers coming from telemarketing cost you £75
   
  
• Customers coming from newspaper advertising cost £100
   
  
• And direct mail letter 2 doesn't work. You've sent out 2,000 copies and not one sale.    

What should you do?

Well you could just attract customers through natural searches. You can't get cheaper than free but your marketing is a) very restricted - you depend on people searching for the optimised phrases and b) risky because of search engine algorithm changes.

And you will be severely restricting the number of customers you attract.

So it makes sense to extend your marketing into pay per click to build a bigger funnel. It costs you £15 to attract a customer this way but you still get £35 profit (the 50 minus 15) on the first transaction.

Then there are all the people who don't go looking for your services. They may not even recognise that they need what you offer. They may be thinking about the problem but not your version of the solution.

So starting a marketing outreach program makes sense.

And direct mail letter one is nearly as good as the pay per click Internet searches. So you send the letters out and you prove the numbers...and while the numbers keep working, you should keep sending the letter out.

But some people don't respond to a direct mail campaign - they need what you have but they don't take action.

A telemarketing campaign gives you a chance to interact and to answer any objections that may be holding them back.

But this is a more expensive way to acquire customers. In fact it is so expensive, the profit on the first transaction won't cover the cost.

Provided you are not strapped for cash, it still makes sense. If the average customer gives you £150 profit in a year, spending £75 to acquire a new customer is still a good investment.

After all, you give a bank £100 and they will give you back £103 at the end of the year but only if you find a high interest account with conditions.

Same with the newspaper advertising. It's not great and I'd be encouraging you to find ways to improve the results but it is still profitable.

What Doesn't Make Profit Sense Is...

1. Wasting time on direct mail letter 2. It's not working so stop spending your money.
    
   
2. Spending your marketing budget - time or money -  on anything that you can't measure.
    
   
3. Artificially restricting the money you make by setting false ceilings.

Yes your accountant doesn't want you spending money you don't have. Your accountant doesn't want you wasting your money by spending £30 per customer if it could be £15.

But it makes sound financial sense to keep spending on marketing when you can see that it is working.

So is it time for you to increase your marketing cost of sales?

What Is The Purpose Of A Business?

Controversial thoughts on the purpose of a business - an essential topic for every entrepreneur and small business owner to resolve in their minds..   

What is The Purpose Of A Business?

I read a lot of new age hippy claptrap about the purpose of a business including that the purpose of a business is to:

How To Increase Profits Webinar

Just a quick reminder to make sure that you don't miss my webinar with top US business coach and former INC 500 fastest growing private companies entrepreneur, Scott Hallman, founder of the Small Business Growth Club.

Scott will be explaining how you can find easy and quick ways to increase profit, even in these difficult times

It will be held at 6:00 pm GMT (1:00 pm EST) on Thursday, January 15th and will last around the ninety minutes mark.

I originally thought it would be an hour but we have extended it to give time for more questions and answers and to reduce the time limit on Scott and the information he can share.

Book your place here - How To Increase Profits Webinar

I highly recommend this webinar to you and my aim is that the more chance you have to listen to Scott and not me, the better.

If you are attracted by Formula Five that is getting a lot of promotion at the moment, do yourself a favour at have a chance to sample advice from another top US business coach. Both Scott Hallman and Paul Lemberg have presented at Jay Abraham events (I have a recording on them both together in Q&A sessions).

Talking of Jay Abraham, this is what he had to say about Scott:

"Scott Hallman is the undisputed master of implementation. I highly recommend his system if you want to turn great ideas into great profits."

Join us in the webinar and learn how to add at least $5,000 to your profit.

Register at webinar 

Update - After The Webinar

I won't pretend that it went perfectly.

We had a few communication difficulties at the beginning which meant we were late starting and my nerves were frazzled and in shows in my voice.

Scott was excellent and shared many tips on how to increase profit. We had a good number on the call but we would have liked more interaction since few people were prepared to put there hands up.

I suppose this is the problem when you don't broadcast regularly. You don't have the chance to build a community of regular listeners who will share their experiences and ask ideas.

Want to find out about my next webinar - follow me on Twitter.  

Disclosure - I am an affiliate for Scott Hallman and the Small Business Growth Club. If you buy after clicking through from my link, I earn a commission for the introduction.

Profit Improvement Models & Methods : Comparison

As Formula Five is receiving so much promotion and attention at the moment, I decided to assess the methodology underlying Formula Five (affiliate link) and compare it with other profit improvement models and business coaching frameworks.

Eureka Moment - So That's How You Make Profit

There are no qualifications to be an entrepreneur.

No one teaches you how a business makes a profit and how you can manage for profit improvements.

Scott Hallman Webinar - Increase Profits By At Least $5000

Join me on a live webinar call January 15th 2009 at 6:00 pm GMT (1:00 pm EST. 10:00 am PST) with a world’s leading entrepreneur and small business coach, Scott Hallman.

He promises to show you how to add at least $5,000 in cash profits to your business without spending a dime.

Plus, he is going to share his inside method for converting high paying clients, and show you how to modify this technique to get more customers, that pay you more money.

Increase Profit From Hidden Profit Opportunities

Exciting News. I am putting together a series of webinars/teleseminars with some of the world's leading experts to help you to increase profit from your hidden profit opportunities.

This is still very much in the early stages of planning but so far I have approached three of the people I most admire and had an immediate Yes and I have many more of the leading experts I will be approaching.

One of the nice things about my blog is that in the fifteen months since I started, I have raised my profile as a profit coach, both with entrepreneurs and small business owners around the world and with the gurus.

You don't need me to emphasise to you how tough the recession is making life at the moment throughout the world and how it is squeezing the profit margins of the best managed businesses and threatening the very survival of many others.

You see it every day in your business and every night on the television news.

This is your chance to fight back by finding and exploiting the hidden profit opportunities that already exist in your business. Instead of worrying about profits going down, you have the potential to use this recession to increase profit and come out of it much stronger.

But only if you know how to find and exploit these hidden profit opportunities.

The First Webinar - Scott Hallman

I am pleased to announce that the first free webinar will be with Scott Hallman, one of the world's leading entrepreneur and business coaches and one of my own personal heroes.

Regular readers know that I have been raving about Scott and his Small Business Growth Club as the program I wish I had created.

This call is scheduled for 6:00 pm GMT (1:00 pm EST and 10:00 am PST). It is difficult to make these calls convenient to all time zones.

Find out more details and sign up to the webinar.

Later Webinars

To be announced.  

Small Business Big Profit Dream

Are you one of the many entrepreneurs and owners of small businesses who dream of a big profit but you don't have any desire to have a big business?

I must admit the thought of working for a business with a thousand employees is a too much for me. I did it in my younger days but I didn't like it.

You don't have to abandon your small business to make a big profit.