EP 46: The 4 Pillars of Increasing Revenue

Episode Summary:

In “The 4 Pillars of Increasing Revenue,”  the Messenger Mastermind covers the 4 pillars of increasing your ecommerce revenue: Adding New Customers, Increasing Average Order Value, Increasing Purchasing Frequency, and Increasing Prices. The team breaks down each pillar and provides pros and cons for each, including pitfalls to avoid.

To find out more about the Messenger Mastermind team, visit: www.MessengerMastermind.co

 

Episode Highlights:

  1. 1:18 What are the 4 Pillars of Increasing Revenue, and why do they matter?
  2. 1:46 How can a business increase its customer base?
  3. 5:38 Why increasing Average Order Value (AOV) is SO important
  4. 11:18 Why having repeat customers is necessary for success and growth
  5. 18:10 The minefield of raising prices: what to do, and what definitely NOT to do

 

Resources Mentioned:

  1. Facebook Messenger Tool – Manychat
  2. Email Platform- Klaviyo
  3. SMS Marketing – Postscript

 

Episode Transcript:

Jeremy: Welcome, welcome to another week’s episode of the Messenger Mastermind podcast. As always, I’m your host, Jeremy Horowitz, joined by my incredible co-hosts, Mark Aruda, and Ben Vandal. Today, we’ve got a really exciting topic that we think a lot of businesses could really value from as—even at the stage of business that we work with and that we manage—we are constantly revisiting these core fundamentals and really seeing how we can leverage them further.

So, we’re going to jump right in today. We’re going to be covering the four ways to increase revenue. And, basically, how can you just make more money from your store or recurring ecommerce business.

 

And, first off, it’s increase your customers: just getting more people to buy your products. Second, getting the customers who are currently buying your products to buy more. Three, increase the frequency of those purchases: so, get them to buy more often. Then, four: raise prices.

 

So, let’s just jump right in. Mark, do you want to break down how a business could increase their customer base?

Mark: Totally. So, when we say that there’s a total of four ways to increase revenue, that often sounds like that can’t be possible—there has to be more ways. But, we’re looking at a big picture, and increasing the number of customers you have is probably the main area that most people look at when they’re trying to increase revenue. They kind of don’t pay as much attention to the other ones, and put most of their focus on bringing in new customers.

 

So, that’s all that this is: all the ways that you will get a new customer for your business is this one of four steps. So, that would just be things like increasing your ad spend, reaching out to cold prospects, whether that be through social media, or other avenues, bringing in leads through lead capture methods, just any ways to collect different contact points to then convert them into customers over time. Increasing those customers or going them helps feed the other three aspects to grow our revenue.

 

Ben: Yeah, this is the first talking point on every call with every client. They want to get more customers in the door, and just like Mark said, it’s usually ad spend and getting people and driving traffic to your site. Depends on your particular company, but we’ve seen direct mail—people have done that. Some referral programs, affiliate marketing, things like that to get new customers in your door. So this is—kind of like Mark said—the main focal point that starts the bottom of the pyramid.

 

Jeremy: Yeah, and I would say probably 80-90% of all content in podcasts in this space are talking about this one core thing. Which, don’t get me wrong, I’m not saying that it’s not important. Bringing new customers in the door is probably the best way to grow a business overall but—depending on your business, probably also the least profitable.

 

Mark: And also, the most expensive.

 

Ben: And, the most difficult.

 

Jeremy: And so, I think that—I don’t want to dwell too much on this. I think there are plenty of podcasts, blogs, other areas of content that really dedicate to this, but: just thinking through, “How can we be more efficient in how we bring new customers in the door?” will really go a long way, as it will continue to bring money into the store. But, my one piece would be: don’t do it at the expense of profits.

 

Don’t make sure that you’re bleeding money just to make sure that people are buying your product. Really think through how you’re going to get those customers to buy more over time, which really is the second pillar of this process: of thinking through, okay, now that you have spent all of this money and all of this effort to get someone to your store and to buy, how do you get them to buy again? Or, how do you get them to buy more products while they’re on your store?

 

This has a lot to do with increasing AOV, and I know we’ve discussed previously things like cross-sells and upsells. We really dedicated a whole episode to that, back in Episode 35. So, if you want to go back to the basic tactics of upsells and cross-sells.

 

The important thing here is you’re creating a leverage point, because you already spent all that effort to your store. Now, you’re driving more revenue from each customer, which does things like make your marketing dollars more efficient and more profitable. I think this is one of those areas where I’m happy that businesses are starting to pay a lot more attention to, but I think a lot are still missing out on some massive opportunities.

 

Ben: Yeah, and this is where it gets really fun. When you start focusing on things like this inside your business. And that’s why Messenger Mastermind as an agency—we go over all these topics, because a lot of people come and they ask for ad advice, and “How do I get my CPAs lower?” and “How do I get more return on ad spend?” and the answer is right here: increase your average order value.

 

If you’re paying the same CPA for a customer to come in the door, then you’re increasing your average order value, then you’re increasing your return on ad spend. That doesn’t cost you a lot of money on the backend, but will increase your return on ad spend, and overall profit on the bottom line.

 

Mark: Yeah, just think: it’s honestly one of the easiest levers to pull, often a low-hanging fruit. If you 100 orders a day, over 365 days a year, if you could add even a couple of dollars to the back end of every order, what does that look like at the end of the year for your bottom line? It can really add up just by making small, little adjustments through things like cross-sells, upsells, bundles, several other things just to try to get people to add on a little bit more.

 

And there’s a lot of great ways to do that.

 

Jeremy: Yeah, and I think it all comes from introducing more products onto your store. And so, if you haven’t had a lot of success through your primary hero product or scaling only a couple of products up quickly, one of the greatest levers that you can pull for your business is find what’s the most relevant and complementary product to those hero products. And then, introduce a lower price point item that a customer can easily add on to the order of what they’re already purchasing. Those are some of the biggest wins we’ve seen: it’s a simple introduction, you introduce those products together, even make some kind of discount or offer if they buy the products in a bundle. It has the benefits that both Mark and Ben just talked about, right?

 

It will—it may or may not increase your CPA, but it sort of makes that argument irrelevant, because your AOV increased, so it actually gives you the opportunity to spend more money to bring more customers in. It’s more profitable because you’re making more per customer, assuming that your ad spend did hold—and, if you can increase it enough, you can even potentially afford to increase your ad spend. And, I think it’s just really, really important, because if someone’s bought into your brand and what your company is doing, then just getting them to buy more products—it will be the best way to grow because they’re there to buy from your store.

 

I think another really interesting tactic that is at some level pretty standard—but definitely happy to see more businesses investing in it—is tier spending thresholds. This can take many forms. So, probably the most standard that you’ve seen is “Spend above $50 to get free shipping” or whatever that dollar value is. But what I think a lot of companies are really starting to do, especially around the holidays—but just thinking through promotions in general—is providing either additional free gifts over a certain spending threshold, higher discount value. Really, not just discounting a product down originally, but finding ways to get people to spend more and provide really, really awesome benefits at those higher levels.

 

Ben: Yeah, and this is kind of Business 101, right? So, this is why when you go to the grocery store, there’s gum at the counter when you’re checking out. You already bought what you wanted—why not throw another dollar in on your order value? It’s basically free money. You already paid to get the customer in the door for something else, so if you can sell them a like product that also provides value to them without them going somewhere else to buy it, it increases your Average Order Value, and ulitmately, your bottom line.

 

Mark: Would you like fries with that?

 

Ben: Yeah, guac’s extra, you know?

 

Mark: Guac’s extra. Always take it. Moving on.

Jeremy: Definitely. And I think the last piece of that is what we’ll blanketly call “Service Upgrades.”

 

So, these are things like, a gift-wrapped option, an extended service or warranty—I know you all are doing something really interesting around your shipping options. But, basically something that is non-product based, but gets a customer to spend more within that order. And, providing some sort of service for that additional value.

 

Mark: Yeah, we use an option called “Skip the Line,” where customers are able to pay a small fee to get their order shipped out the same day, basically bumping them ahead of everybody else. Other options, as Jeremy mentioned, would be things like gift-wrapping or maybe protection plans—in a way, these might kind of fall under cross-sell/upsell kind of method, but slightly different in that they’re not necessarily like “Buy the same product” or “Buy an additional product.”

 

Ben: Yeah, the e-book throw-ins are another good one, too. Things that don’t take up inventory or any space in your warehouse but provide value to your customer. And they also add Average Order Value to every order in your store.

 

Mark: And great margins on that.

 

Jeremy: Yeah, definitely. And I think—just walking through the next step of this process would be increasing the frequency of purchases. So, you’ve gotten the person to come to your store, you’ve gotten them to buy more products than they were originally planning to, really increasing their value. Now, the next biggest lever is getting them to come back to the store and hopefully spend the same amount of money over and over again. And I know this one can be slightly challenging, as—if you’ve done a great job the first time, the customer should be happy. But, really thinking through what are the levers and what are the reasons that people will come back to buy more.

 

So, things like staying top-of-mind. I know you all really like to leverage product releases for this, if you want to dive into that.

 

Mark: Yeah. I consider repeat customers right up there with AOV as the Top Two most important ways to increase your revenue, if not even the easiest way. So, product launches are definitely a great way to do this. If you already have customers who have purchased what you have to offer, then there’s a great chance that if you offer additional things at times when they’re ready to purchase, just by doing things like using the lists you already built, things like email and SMS, or even just having them on your Social Media list—just being able to offer them a new product—there’s a great chance that they’re actually going to take it.

 

So, instead of going and spending whatever it is to acquire a new customer—thirty dollars, forty dollars to bring someone in the door, instead all you actually have to do is send an email to someone who you already have on your list and offer them a new product—this is going to save your margin as much as possible because you’re not going to have to dip in to bring someone new to the door, educate them all over again.

 

Obviously, it’s important to be bringing new people in, but there’s nothing better than just being able to reach out to the people that you already have and just get them to purchase again.

 

Ben: Yeah, so this one’s really kind of product-dependent, too. If you have a lot of skews on your site, then people will obviously come back and purchase based on if they had a good experience with your company in the first place. But, if you have a product like a one-off product or something like that, it’s really difficult to get them to repeat buy unless it’s for a gift. But if you don’t, one of the easier ways to get people in the door, like Mark said—you pay the front end CPA to get them in for the initial purchase, so they are actually easy targets for the next purchase, the next product you’ve released, the next holiday, the next time you have a promotion, and there’s a general blanket statement: you should be excluding your purchasers from your ads. You should be excluding people who purchased from your email flows and things like that.

 

And, that is kind of true, but you should also be including them in other ad groups, other email flows that speak to them differently. Because they’re still so important. You already got them in the door, they’ve had an experience with your company, they trust you, and they’re going to be the people you go to first to come back the next time.

 

Jeremy: Yeah, and when I look out at what other companies are doing, I always find it fascinating that—like, when you look at the companies that spend a lot of money and then discount their product heavily to get people in the door, they’re usually very hesitant to offer discounts to get people to come back and buy more.

 

And, I’ve seen this a bunch of times, and really thinking through this process—you want to try to do the opposite. You want to discount your product as little as possible on the front end. And then, really step up your discounts to get them to come back and buy more. Because when you think about your marketing costs per purchase, the first purchase is going to be the most expensive, where you could probably afford to discount the least. Whereas your second, third, fourth purchases—typically, emails—maybe another channel should be, if you are already spending ads, should be significantly less of an ad spend. Where you actually probably have more margin on those products to discount more if you can at all—and, if you can, more heavily. And so, I think it’s a really interesting area where putting in things like post-purchase cross-sell email flows and win-back flows with tactical but meaningful discounts in those areas will actually really pivot a lot of businesses.

 

Because, you’ll curb your “One and done problem,” get people to come back and buy a lot more, and as you start to think about amortizing your advertising spend on a customer over their lifetime, they become way more profitable the more times they come back to buy from your store, even if their Average Order Value dips slightly in those later purchases.

Ben: Yeah, and the platforms are getting on board with this too. We’ve seen Klaviyo and PostScript now that have predictive analytics that can predict when the customer is most likely to come back and make a purchase, and send a message to them around that time. So, it’s really—like we always talk about—it’s that low-hanging fruit.

 

Mark: Yeah. You don’t want to be a one-hit wonder. In this situation don’t sell one-and-done. And, obviously, every business is going to be different, but if your Repeat Customer Rate is under 30%, I would say you have some easy growth in that range. If you can get your Repeat Customer rate up to close to 50%, you are going to have a very profitable business that will absolutely continue to grow. When we look at the numbers of businesses, that’s usually one of the first things that we look at and ask about: “What is your Repeat Customer Rate?”

 

Because that’s where revenue is made.

 

Ben: Yeah, this you know, ties into the overall aspect of running a good business. This is why UX is so important. The customer has to have a good experience the first time. This is your first impression, and it’ll just be easier to sell to them down the line. Because they trust you, and they enjoyed their experience.

 

Jeremy: Definitely. And I think the last piece that I think might be a little more robust and complicated is a Rewards and Loyalty program.

 

And, really thinking through that User Experience, and really thinking through what the customers find value in your company from. And, then, trying to figure out how you can gameify that process, how can you provide proper incentives, so that they want to stick around, they want to engage with your brand more, that they want to buy more of your products. And for the companies that do this right and really do properly invest in it, like your Sephoras of the world. I think, also—I just looked at this company…

 

Ben: I think a good one for this is Kohl’s, too. They give you Kohl’s bucks with every purchase that you buy, and they pretty much expire within thirty days, so if you don’t come back to make a purchase, you just lose that money, and it kind of builds that FOMO in you if you don’t get back there and use that free money.

 

Jeremy: Yeah, exactly, and it basically is the same concept as a discount code. But, the way that it’s structure, the way that the customer thinks about it, is you’re not discounting their products, but they’re earning that. And I think that ownership stake tied with that scarcity and urgency really does have a bigger impact in adjusting that purchasing behavior to get people to come back and buy more frequently. And so, it is a little bit more of a time investment, and it is a little bit more of that experience—I think that will go a long way as well.

 

So, moving on to our last pillar. We’re almost home here.

The fourth way to increase revenue is to raise prices. This is a pretty tricky one. There are a lot of potential pitfalls here.

 

We just want to quickly run through what are the Dos and Don’ts of raising prices, because I mean, let’s be honest, every couple of years, just the cost of doing business from your Cost of Goods Sold to your Operating Expenses to your Advertising Costs are just going to increase naturally.

 

And so thinking through in a creative manner how can you raise and adjust your prices so that you can remain profitable and you can keep the business going and growing. I think it’s a necessary thing to do, but you just have to be tactical in how you approach it.

 

Mark: Yeah. This can be different based on whatever type of business that you’re in, but I like to live by a pretty standard rule here. That’s: if you’re going to increase prices, you should be able to increase value in some way. So, that could even just be perceived value. So, that could just be like maybe you just change your language about the products slightly to highlight something that might be an improvement in it. But, obviously the best way is if you can actually improve a product, then that absolutely justifies a price raise. You should most likely not be improving a product without improving the price.

 

They should go hand-in-hand. Customers are more than accepting of that. Any time you’re releasing a new product, if you feel like your current prices are too low, then when you release a new product, then that’s another good time to raise a price. Price of a product that’s kind of just been sitting around, raising a price could get a little bit questionable, especially if the product is already not doing too well.

 

But also, as Ben will tell you, there’s some good ways to take a price that’s been kind of flatlined for a while and grab some attention for it.

 

Ben: Yeah, I have a real-world example of price raises, too. I just went into reup my lease for my beautiful Toyota Rav-4. And they tried to tell me that it was an extra hundred dollars a month. Just, so I asked the guy, “Why? Why is this more expensive?” And he said, “Well, you know. Things got more expensive.” In three years, that’s not an acceptable answer to me.

 

Why would it go up a hundred dollars? Three years later. We had a disagreement. I was trying to teach him there: he had an opportunity to show me why the product was better this year, but he didn’t do it.

 

So, I walked away. But, anyway. A good way to bring back a flatlined product with a raised price too is: if you have something on the horizon where you want to change the price of a product, give your VIP customers—your return customers, this will also help you increase the return customers—the ability to get in at the lower price before you raise the price going forward. So, if you have a product, for example, a fifty-dollar product. You can tell your customers, “At the end of this month, we are raising the price to fifty-five dollars. So, have the next thirty days to purchase it at the old price, but the price will go up going forward.”

 

We’ve seen tremendous spikes getting into the door. That’s also a great opportunity when you have their attention with that promotion to explain to them the additional value you are adding to the product to raise that price.

 

You can do simple things like Mark said—perceived value. It can be actual attribute to a product, it can be things like stickers that you can include inside the package, or something that adds value to the product and be able to sleep at night.

 

Mark: Yeah, that works really well. If people know they have the opportunity to be locked in at a lower price, that is definitely a motivator to make them take action before that price goes up so that they can be locked in for as long as possible.

 

Jeremy: Yeah, I think those are all great tactics, and I would say in the Marketing—and it should also be mirrored with your customer support team—it should all be focused on the value. Like, if you do a price raise properly and done really well, customers won’t really be complaining about the price. They’ll be so excited about all the additional value that you’re providing that they’ll be willing to spend the additional money.

 

I think that’s how you can really tell if it’s a success or not.

 

So, I know we covered a lot in this episode. It’s definitely probably one that’s worth going back and listening to a couple of times and when you’re focusing on one section of the business, focusing on:

 

One, increasing your customer base, getting more people to buy your products.

 

Two, getting the people who are already coming to your store to buy more.

 

Number three, increasing the frequency that those customers come and purchase from your store.

 

And four, raise prices.

 

We tried to cover at a high level a good amount for each section, but you can dive deeper and go into more advanced tactics for each one of these. But really, at the end of the day, it always comes down to, out of those core four pillars, how are you really addressing your business, what are the leverage points that maybe you could invest more in, and really see that high multiple return that could really change the business forever and really add to both top and bottom line to make sure that you can continue to grow your business, grow your team, and see where the future takes you.

 

Ben: And if you need help with that, shoot us an email at hi@messengermastermind.co.