They call it "the cost to serve" or CTS. According to supply chain consultancy Logistics Bureau the figures are pretty consistent across all industries: 20 per cent of customer orders make negative profit, 10 per cent of the product range makes no contribution, and 12 per cent of customers are totally unprofitable.
Think about your own business - the cost of opening the door every morning, paying staff, rent, overheads, buying product - and you'll probably say the figures are conservative.
So you work hard to drag each customer in. But once you have them, do you get all you should out of them?
The art of good business is maximising your sale. The shopkeeper in the deli knows it, and asks, "something else?" at the end of each purchase. The fast food retailer knows it, when the customer orders a hamburger and is asked "you want fries with that?"
This on-selling is an essential part of the marketing strategy for the likes of McDonalds and KFC. More than a third of fast food and snack sales in these restaurants include a soft drink with them.
When you consider the billions of dollars turned over by these companies, you get an inkling of the amount of money involved. No wonder Coca-Cola has a division totally devoted to McDonalds, complete with its own president. After all, he has to ensure that Coke is bought with the burgers sold in 31,000 outlets in 100 countries.
The other method is up-sizing. Whenever you buy a soft drink at the cinema, you are offered ice cream and popcorn in a bulk buy. Another dollar and you get the super-humungous box that will keep you annoying the neighbours throughout the movie.
But hey, if they have sold you a ticket for $15 and then another $10 worth of nibbles, that's a 66% increase in your value as a customer.
But you don't have to run a restaurant to make good use of on-selling. A smart tailor won't let you out of the shop without pointing out a couple of shirts which will perfectly complement your new suit.
The hairdresser will persuade you that to maintain your expensive new cut and colour you need this salon-quality shampoo and conditioner set. And a travel agent will persuade you that before taking the overseas holiday, the family had better be covered by insurance.
If you consider how difficult and expensive it is winning the customer in the first place, it's so obvious that you should maximise the sale - sometimes even double it - by adding that "something else...?"
But think back to how many purchases you make that miss out on this extra sale. The assistant blankly takes your money, bags the sale, and turns away. Often it is up to you to add, "By the way, do you also sell thingamy jigs?" Sometimes you even have to go to the back of the queue and start all over again.
It all comes down to staff training. It's difficult when the teenage shop assistants have their brains tuned to Saturday night's date, to get their focus back on the job in hand.
You have to make sure they understand their product, the stock, and the mind-set of the customer. The suit buyer isn't looking for a garment but for how he will look when it first goes on.
The patron hasn't come to see a movie but for an entertainment experience. The travellers want to enjoy the holiday, not worry about the unforseen.
When your staff understand the bigger picture, they can maximise that hard-won sale.
ray@ebeatty.com
Blog: themarketeer-raybeatty.blogspot.com
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