Each time I visit our local service station to purchase petrol, an attendant will ask me if I’d like to buy some chocolate, Mentos or chewing gum that they currently have on special. Most pizza outlets will ask you whether you would like garlic bread with your order. The ‘add-ons’ that these companies offer generally have a low dollar value but when added up over a long period of time, they can significantly add to the business’ bottom line. I once heard that the owner of a large pizza chain buys a new sports car each year thanks to the extra portions of garlic bread he sells!
In a previous business, I discussed this concept with our suppliers. We sold one product for $4,900 and had another follow-on product which we sold for $2,600. Because the product was software based, the price reflected the value of the Intellectual Property however the cost of supplying the CD, manuals, packaging etc. was minimal.
After some discussion we agreed that each time we sold a $4,900 product (our most popular item), we would give the customer the option to buy the $2,600 product for just $400*. We agreed to split the $400 evenly between our business and our suppliers. Because the cost of our marketing, sales, admin etc. was factored into the first sale, the $200 we made on the second sale was effectively net profit. Even if we only sold 10 ‘add-ons’ a month, that equates to $2,000 on our bottom line. Imagine if our business valuation was based on an earnings multiple of 5. We’ve just increased the value of the business by $120,000!
When you think about your business, are there other products or services that you could offer at the time of purchase to make that extra sale? Is there another supplier that you could deal with or can you create something that would allow you to increase your net profit at the time of sale?
For those of you in the business of selling Intellectual Property or something that you create once and sell many times, this could offer an excellent opportunity. For those not in this line of business, get creative and talk to your suppliers. You’ll be surprised by the difference it could make to your profits and the value of your business.
*Note: In our case, the $2,600 follow-on product was not a popular stand alone sale item for us. By selling this product for $400, we were not concerned about cannabalising future sales. It’s worth keeping this in mind.