In my first webinar in the Double Your Profits series, I spent a good amount of time talking about what adding value means in a business and why it’s the basis of how business works at a fundamental level.
In today’s newsletter, I want to focus more on tactically what it means and how to put it into play in your business.
The basic idea is to think of all ways you can offer more to your customers and then rank order that list by sorting from least expensive for you to add to most expensive and cross-reference that with the price increase that could result from the addition.
For a very simple example, let’s say you offer a massage service. You charge $90 for a 60-minute massage. Now here are some things you could add to the experience that you think customers might like:
- Scent experience- add selected essential oils and/or scented candles to the room to enhance the sensation of calm and relaxation
- Hot stones experience- during part of the massage, you place warm stones on specific pressure points to create a different kind of pressure feeling
- Add 30 minutes of reflexology- you do an extra half hour of foot massage added to the regular 60-minute session
- Mobile app and loyalty program- makes it easier to book and rewards return customers
- Massage at home- you go to clients’ homes to deliver the massage
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All of these could be things clients would like and may pay more for, but they are definitely not all the same! Suppose we relist them but add the price increase and cost increase we might see:
- Scent experience- cost $1.50/session, price increase $10/session
- Hot stones experience- cost $1/session, price increase $10-$15/session
- Add 30 minutes of reflexology- cost $15 for 30 minutes of therapist time, price increase $30/session
- Mobile app and loyalty program- makes it easier to book and rewards return customers- one-time cost $2500 for the app development, free ongoing use, may increase visits 15%, discounting cost is 10% or $30 (one hour wages) if you did 7 paid sessions, get one free
- Massage at home- cost increase includes gas, travel time, extra insurance needed, lost onsite time = $60, price increase = $45
Of course, these are just examples, but I don’t think they’re too far off.
What we quickly see is we should be offering all clients the option to add hot stones and scents for sure. In fact, we should probably offer a free sample to each client of one of the scents and the stones, because even if only 25% become regular users of those services, the sampling cost was so low that it was worth it for the added value.
Even better- offer the scents and hot stones to each new first-time client in exchange for a review request of the business, so even if they don’t become users of it, you’ve still traded it for some potential added value.
We probably should invest in our own mobile app to build repeat business and have a direct marketing channel to our clients. Frequent users could also be rewarded with surprises (like a free inclusion of the scents or stones) and other incentives to drive more frequent visits.
We could offer the reflexology, to build overall per-client revenue, but it’s a wash as far as margin is concerned because we have the same cost for that add-on as we do for regular massages on a cost basis.
And the massage at home option, while many clients might like the convenience of it, will need to be priced a lot higher than many clients are likely to want to pay when we consider the cost impact on us of offering it. More likely, it won’t make sense to offer at all.
The caveat is we have to make sure the clients see the value of what we’re offering; it’s not just our impression that there is value there. But if we are able to turn 25% of $90 massages into $100 massages and, on normal ones, we make $30 profit, but on the higher ones we make a $39 profit, that’s a big jump for a very low-cost value add.
Layered with the other options that increase visit frequency and customer value, we could add 20-40% more revenue at a very low extra cost and seriously bump up our profits from some small and easy low-cost changes.
It also serves the double purpose of helping you stand out from the competition and gives your customers a reason to stick with you, even if you aren’t the cheapest option or the closest. Another huge benefit to spending a little time making your business better for your customers.
And it works for any kind of business- product, service, hybrid- if you sell something, you can figure out how to make the sale more enticing and valuable, and that is the key to putting your business on rocket fuel! So start making your own list of potential value adds to your business and then see which ones jump out as must-do right-away ideas!
