In order to understand how to increase sales in retail, you have to understand where sales come from.
More customers – more sales. Not the only way to increase sales in retail
A lot of retailers I work with, think the only way to increase sales is to increase the number of customers. But in reality, increasing the number of customers is the most difficult way to increase your sales.
I’m not saying you should not increase your customers base. Because, you should.
But there are other 3 ways to do it, and it’s easier to control these 3 ways.
So let’s see those 4 ways:
1 – Number of customers
As I said, this is the most used way to increase sales.
More customers, mean more sales. But be aware of limitations:
- It is not guaranteed that new customers will have the same value as existing customers. (we’ll talk about this later)
- Adding new customers, sometimes, is only possible with costs. Theses costs are called, Cost of Customer Acquisition.
This is the first way (let’s call it strategy) you have to increase sales. Now, your job should be to imagine the tactics you’re gonna use to increase the number of customers.
So, pick a pen, and start writing your list with ideas to increase your customers base.
Let me give you a hand, with some examples:
- People passing by your store (by feet, or by car). This should be your first tactic. Because, usually it’s free or very cheap to get passing by people to buy in your store. Of course this is valid only for brick and mortar stores.
- Advertising. Usually paid. It’s a good tactic as long as the cost you spend to acquire a new customer is lower than the profit this customer will bring to your store. And remember, it’s not only the first purchase that counts, it’s all the purchases this customer will buy in the future. This is called Customer Lifetime Value.
- Public Relations. That is, making other people to tell friends or followers about your products or store.
Now, that you have your list, start with the easiest for you, and do what you have to do to get new customers. And don’t forget to measure the results.
2 – Number of items purchased each time.
Another way to increase sales is to make people buy more products each time they visit your store.
Let’s suppose your customers buy, on average, 2 products per purchase. If you could increase that number to 2.5 products per sale, your sales would increase 25%. Not bad.
And there are a lot of tactics to do this. Let’s take a look at a few ones:
- Improve customer service. That is, making your sales people to “convince” the customers to buy more.
- Use a marketing technique called “Cross-selling“. Cross-selling is selling products that are complementary. For example, selling a tie, with a shirt.
- Use your counter desk to make last minute sales.
- Use package of products.
- Discounts. But attention, that will reduce average price. (more on that)
3 – Average price of products sold
If you could increase the prices of your products (without decreasing the quantity sold) that would be a great thing.
And sometimes, this is possible.
Don’t presume every increase in prices, will lead to lower sales (in quantity). That is an economic law proved by numerous studies to be false in many cases.
The business world is full of cases of retailers that increased their prices and instead of customers lowering their purchases, it was the opposite. Yes, sometimes higher prices mean higher sales (in quantity).
I’ve seen myself this phenomenon.
But of course, most of the times demand will decrease as you increase prices. But nevertheless, you have to calculate if the benefits (higher average price) is higher than the losses (less quantity sold)
How about tactics to increase average prices?
- The obvious, increasing the prices of products.
- Using a technique called “Up-selling”. “Up-selling” is selling more expensive products than customers would initially wanted to buy.
4 – Frequency of purchase
The last one, is the frequency customers buy from you.
If your customers buy from you only once a year. But then, you make him buy twice a year, your annual sales will double.
You have to understand that there is an average frequency of purchase. But, there are different frequencies between your customers.
What I have found, is that customers that pass near your store have a much higher frequency of purchase than customers that usually don’t pass near the store. It is quite obvious why this happens.
But this case is very important, because it means that your customers you acquire by advertising (usually don’t pass near you store) have a much lower value than your existing customers.
The formula to increase sales in your store
Now that you know the 4 ways, we can create a formula to understand this better.
Sales = number of customers X frequency X average quantity per purchase X average price.