NAIROBI, Kenya, Feb 20 – The average bill is the money a customer spends on a single purchase or a 22Bet member spends on one bet. It can be different – it all depends on the area of business, the cost of goods, the customers’ purchasing power and their loyalty. And the average receipt is also related to marketing activity: for example, when a store offers to buy two sodas and get a glass as a gift, it increases the average receipt.
How to Count and Estimate
First, let’s figure out how to calculate the average bill and understand whether it’s large or small. Calculate the average check by a simple formula: Revenue/number of receipts.
For example, in the company called “Cucumber”, which sells fresh fruit and vegetables online, the average revenue for the month is $500,000. At the same time the number of checks, that is, orders is 10000. Let’s do the math:
500,000 / 10000 = $50 – the amount one customer buys at a time.
But it isn’t clear: $50 – is it a lot or a little? At first glance, it seems like a lot: they sell cucumbers and pears. But to estimate the average bill, you need to relate revenue and variable costs, that is, to calculate the marginal profit. The formula is as follows: revenue – variable costs.
Cucumber has revenue of $500,000 and variable costs of $300,000. So the marginal profit is $200,000. That seems good, but there are also fixed costs that don’t depend on revenue, such as office rent and the accountant’s salary. The company spends $150,000 on them every month. In the end, only $50,000 of revenue is left on profit. And here each owner decides for himself whether 10% of his earnings is enough or not.
If that’s not enough, there are two ways: either reduce costs or increase income. Revenues can be increased by attracting new clients, but this is expensive and time-consuming. Or you can increase income by raising the average check for existing clients.
It’s also important to monitor the margin, not from time to time, but every month. If the owner is satisfied with 10% of his earnings, then his margin should not go down. If the margin falls, you start to see if you can affect the cost of production, and if not, you need to increase the average check.
It turns out that the average check should be increased in two cases: if the marginal profit isn’t enough or if it begins to decline.
The Easiest Way to Increase the Average Check
The easiest way to increase the average bill is to raise prices, for example, to do +10% on the entire price list. For customers, it will most likely go unnoticed: everyone knows that prices are constantly rising. But the company’s profits will increase: for example, at Cucumber, raising the average check by 10% will eventually add $50,000 to revenue.
But simply raising prices can be scary – what if customers leave? In this case, you have to look at your competitors: if they are selling more expensive, but haven’t closed yet, then everything is fine, and you can raise prices. And we also have instructions on this.
But sometimes raising the average check immediately for the entire price list can increase cash turnover, but have almost no effect on profits. About that next.
More Complicated Ways to Increase the Average Check: Estimate Margins, Sell Bundles, Do Upselling
Any average check needs to be analyzed: for example, it may be small, but with high-margin goods, or, conversely, there may be a lot of money in the check, but little margin. We’ll explain in a moment:
Cucumber sells cucumbers at practically the cost of production, and mangoes at a high markup. If clients buy cucumbers alone for $5000, the company will make little money, but if the mangoes, Cucumber will grow and prosper.
From there, it’s important to determine what the company wants: just to increase cash flow or to make more money. Most likely, to make more money, which means it needs to raise prices on high-margin products, not on everything.
If you raise the average check at the expense of such goods, it may increase insignificantly, but the margin, and therefore profits, will increase noticeably.
There are two main ways to increase the average bill:
- Cross-sale – the sale of additional goods. Here it all depends on the sphere: for example, a cafe can sell sauces to appetizers, bars can sell toast to beer, and a hardware store can sell phone covers.
- Upselling – selling a more expensive version of a product. For example, a company sells regular doors for $500 and doors with unusual-colored hardware for $800.
In practice, marketers come up with all sorts of promotions, strategies and techniques as part of these methods. For example:
- Sell kits – for example, pants and jackets not separately, but together. Or a massage together with a bath, and caviar with butter.
- Offer a second product or service at a discount – a peel after a massage at a 30% discount.
- Give something away for free – for example, offer coffee as a gift when you buy a croissant.
- Sell subscriptions – several services or products at once, as an option – a season ticket for coffee.
For example, a beverage store sends a text message offering a liter of free beer. The client can come, take the drink and leave. But in practice, people take an extra liter of beer and accompany it with fish, chips, and other snacks. This is a good way to increase the average check and make more money.
