Friday, August 7, 2009

24 Ways to Boost Your Average Ticket - Part I


This is the start of a new Comanche Marketing series on boosting your average ticket, or average sale. I’ve compiled a couple of dozen tactics, but this number may change before I’m finished. I’ll add tactics when readers suggest new ways to boost the ticket I haven’t thought of (hint, hint) or when I stumble across new approaches. And also, when it comes time to write about the tactics, what seemed brilliant when building the initial list seems hopelessly stupid when I try to describe it. Well, let’s get started…


Why It Matters

Raising your average ticket even a few dollars can make a tremendous difference to your bottom line. Let’s consider the following scenario. A pure service company has an average ticket of $325. The company promotes braided steel washing machine hoses for $49 installed on all service calls. The company buys these hoses for $9. The time required to install one is so minor, it’s incidental (e.g., 5 to 10 minutes). On every 10th call, a customer opts to add the house on the ticket.

This works out to an increase in the average ticket of $4.90. The material cost increases $0.90, resulting in an increase of $4.00 in gross profit per call.




Hose Price
$49
Material Cost
$9
Gross Profit
$40
% Buying
10%

Increase in Avg Ticket
$4.90
Increase in Avg Material Costs
$0.90
Increase in Avg Gross Profit/Call
$4.00


Ho hum. Yawn. Four bucks. That’s a whopping net increase of 1.2% of sales ($329 / $325). Wooooow. I can retire.

Don’t get hasty. Let’s get into the numbers in a little more depth. For grins, let’s say the following roughly describes the company’s income statement. The company is profitable, but barely once Uncle Sam gets a cut.

Gross Revenue
$800,000
100%
Cost of Sales
$440,000
55%
Gross Profit
$360,000
45%
Overhead
$320,000
40%
Net Profit (Pre Tax)
$40,000
5%

Now, what happens when an average $4 of gross profit per call is added.

Gross Revenue
$809,846
100%
Cost of Sales
$442,225
54%
Gross Profit
$367,631
46%
Overhead
$320,000
40%
Net Profit (Pre Tax)
$47,631
6%


The company has increased pre-tax profitability 20%! Slight increases in a company’s average ticket can result in significant increases in the bottom line. While not the only one, this is certainly one path to prosperity. Let’s walk down this path and see what we find.


1. Raise Prices

Yes, the simplest way to increase your average sale is simply to increase your prices. If this seems completely obvious, it’s not. Many a contractor moans about average tickets without really pondering the notion of a bump in prices.

A recession may or may not be the right time to bump prices. If you aren’t profitable at your current price levels, you should figure out a strategy to raise prices or increase volume while holding overhead in check. Otherwise, you might as well cut prices to the bone and go out of business faster, sparing yourself the prolonged agony of a long, slow bankruptcy.

Let’s return to our pure service company. Assume the company’s billable hour rate is $125 and the company charges a $65 diagnostic or response charge. With a 40% material gross profit (i.e., 67% mark up), and average of 1 billable hour per call, the company’s average service call looks like the following.

Average Ticket
$325
Diagnostic
$65
Repair Charge
$260
Labor Rate
$125/Hr
Billable Hours
1.0
Labor Charge
$125
Material Price
$135
Material Cost
$81
Material % of Total (Average Ticket)
41%

Bump the billable labor rate, 10% and the following results.

Average Ticket
$338
Diagnostic
$65
Repair Charge
$273
Labor Rate
$138/Hr
Billable Hours
1.0
Labor Charge
$138
Material Price
$135
Material Cost
$81
Material % of Total (Average Ticket)
40%

The total charge increased $13 or 4%. Let’s see the impact on the bottom line.

Gross Revenue
$831,818
100%
Cost of Sales
$440,000
53%
Gross Profit
$391,818
47%
Overhead
$320,000
39%
Net Profit (Pre Tax)
$71,818
9%

The pre-tax profit increased 80% or $32,000!

Of course, price increases might scare away customers. How many calls would this reduce? Let’s say 5%. That’s likely unrealistic. It would lower total company revenue. Yet, the company still makes more money!

Gross Revenue
$790,227
100%
Cost of Sales
$418,000
53%
Gross Profit
$372,227
47%
Overhead
$320,000
41%
Net Profit (Pre Tax)
$52,227
6%


The company would need to lose just over 8% of its customer base for the price increase to have a negative impact on the bottom line. In all likelihood, no one would notice. As Jim Kimmons, who developed the original Callahan-Roach flat rate system used to say, “If the customer’s upset at $338, would he be thrilled at $325?” The answer, of course, is no.

Increasing your prices a small amount, even during a recession, may have a huge benefit to your company profitability. And if you aren’t profitable, what’s your choice?

Surprisingly, many contractors hesitate to raise prices because they don’t want to order new price books. That’s the silliest notion of all. Who wouldn’t spend an extra $2,000 if they could be guaranteed it would result in $32,000?


2. Courtesy Inspections

Charlie Greer teaches service personnel how to perform a “courtesy inspection.” Friends of mine have used Greer trained companies, reported that the inspection uncovered other issues – some had been festering for years – resulting in higher tickets AND… happier customers.

At the end of the work, the homeowner spent much more than the original problem necessitated and thanked the service personnel.

Charlie describes his approach to a Plumbing Courtesy Inspection on his website. It’s worth the read…

Here’s the scenario: I went to the immediate problem that prompted the service call, checked it out, and said, "Okay. I can fix that. That won’t be a problem," thereby putting the customer’s mind at ease.

I then said, "You know, Mrs. Smith, whenever I come out to someone’s house, I always do a quick, courtesy inspection of all their fixtures and drains, just to see if there are any little free adjustments I can do."

Charlie proceeds to check stuff out, tighten things that are loose, clean aerators, and so on. In the process, he builds his value, builds customer rapport, and creates a sense of obligation. In the course of the inspection, inevitably problems or deficiencies are revealed. In many cases, addressing these now will save the homeowner a lot of money down the road. Other times, the problems are like open sores, festering and irritating.

Sometimes the homeowner knows the problem should be fixed, but lacks the skills, knowledge, or inclination to tackle the job. That’s where you crack team of professionals comes in. It’s why you were called in the first place… to solve problems the homeowner couldn’t solve for himself or herself.

Other times the homeowner isn’t even aware the problem could be fixed. Millions of homeowners live with comfort problems, unaware that it’s possible to have even and consistent comfort levels throughout the home.

Remember, no consumer knows all of the things you can do for them like you do. You offer products and provide services that could improve their lives, but you can’t keep them a secret.


3. Sell Service Agreements

This is another no-brainer. Service, or maintenance agreements are contractors between you and the customer to perform repetitive annual maintenance at discounted rates scheduled at times convenient to both of you. Service agreements help you fill in valleys of demand, keeping your service force working during slack times.

Because they are prepaid or charged monthly, service agreements also help with cash flow. And, they represent an unspoken agreement between you and the customer that the customer will do business with your company exclusively during the term of the agreement.

Service agreements are well accepted in the HVAC and pool industries, less well accepted in plumbing, and practically absent from electrical. Often, plumbers and electricians express skepticism about their ability to sell and maintain a base of service agreement customers. The trick is to build sufficient value that the service agreement is an obvious value for the homeowner.

Pool & spa varies around the country, but generally the contractors build up maintenance routes and then, incredibly, sell them. Why not keep the route and keep the future add-on, accessory, toy, and backyard oasis sales? Why not keep the future equipment replacements and resurfacing?

Call takers and dispatchers should start the service agreement sales process by stating at the appropriate point, “I’m required to inform you that we give priority service and discounts to our service agreement customers.”

Pause, and if the customer asks about the service agreement say, “You can save quite a bit of money with our service agreement. In addition to priority service and a ___% discount on repairs, the service agreement includes… [benefit, benefit, benefit]. The investment is only $______. Would you like to save money with a service agreement or simply schedule your repair today?”

Even if the homeowner refuses the service agreement, the stage has been set for field service personnel to repeat the offer. One of the best approaches is to use an apples to apples comparison sheet that compares today’s repair plus the service agreement with today’s repair plus the maintenance services covered by the service agreement.

© 2009 Matt Michel

1 comment:

  1. Very well written. Can't wait for part 2!

    ReplyDelete