You’ve likely experienced up-selling at the McDonald’s drive-through when an employee asks: “Would you like to supersize your meal?”
Up-selling is offering a bigger or better option to a shopper who’s already committed to buying.
But in a slow economy, getting a shopper to that point can be difficult. They’re watching their money and are thinking twice about every purchase.
This is where down-selling comes into play.
Down-selling can help move a skeptical shopper closer to buying.
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WHAT IS DOWN-SELLING
Up-selling is offering a more expensive option.
Down-selling is offering a less expensive option.
If we look at McDonald’s again, supersizing a meal is up-selling, Happy Meals are down-sizing. A parent isn’t going to buy their 5-year old a Big Mac meal. The Happy Meal gives the parent a smaller, lower-priced option. Without it, they’d probably spend their money at another restaurant that does offer kid’s meals.
Down-selling shouldn’t be thought of encouraging your shoppers to spend less, but rather encouraging them to spend some money, rather than none at all.
That purchase then opens the door to future sales.
For example, earlier this year, I discovered a local boutique selling high-end handmade skincare products.
Although their best-selling face cream sounded amazing, I wasn’t prepared to spend $80 on it. I was unfamiliar with the brand, wasn’t sure if the cream would be right for my skin, and walked in the store with the intention of checking it out; not to buy.
The boutique would obviously prefer to sell the $80 jar of cream, however, they still offer a travel size at a fraction of the price, and even a sample size for $5.
I ended up buying the $5 sample size. Not exactly a big sale for them, but it was a sale.
If they only offered the $80 jar, I would have walked out without spending any money, gone home without any of their products, and likely forgotten about their business.
Instead, I went home with a sample of their face cream, was reminded of their business every time I saw the sample on my counter, tried the cream for a few nights, fell in love with it, and returned to buy the $80 jar.
The purpose of down-selling is to get your foot in the door. Yes, we’d all love to sell our most expensive product but a sale is better than no sale.
To down-sell, you must offer lower-priced products.
Those lower-priced products may be:
- Smaller sizes – for example:
- A smaller jar of cream
- A smaller version of a pair of earrings (e.g. same style and materials as a pair of chandelier earrings but in drop earrings)
- Greeting cards sold individually instead of in packs, or card tags instead of cards
- Lower quality materials – for example:
- Cream made with synthetic scents, rather than essential oils
- Earrings made with plated gold instead of 24k gold
- Art or greeting card prints instead of original artwork
- Fewer product features or perks – for example:
- Bags with snap closures instead of zippers, or fewer pockets
- Selling art un-framed, instead of framed
- Regular-priced skincare products may come with a “no questions asked return policy” while down-sell products are final sale.
Down-sell products should stay on-brand. Meaning, if a skincare brand is all about natural, organic ingredients, offering a down-sell product made of synthetic ingredients would be off-brand.
DOWN-SELLING DURING THE PANDEMIC
Down-selling is typically offering a cheaper option next to your regular-priced products.
However, if your customers currently aren’t buying at all, it may be beneficial to reduce your product prices across the board.
Many consumers may not be in the position to spend the kind of money they once did on a pair of earrings, a bar of soap, etc. But it’s likely they still value what handmade products represent; supporting small business owners, knowing where their products are coming from, better craftsmanship, etc.
They may not want to change what they buy, which means they’ll be looking for lower prices or deals.
Down-selling in the current economy may be less about offering a cheaper option and more about offering prices that are lower than you would normally charge.
Lowering your prices can encourage sales, but it must be done properly to keep your business running.
HOW TO PROPERLY LOWER PRICES
Competing on price is generally not a good strategy for a handmade business.
However, we’re dealing with unique circumstances right now.
I would never suggest lowering prices to the point you don’t make a profit, or worse yet, don’t cover ALL your business expenses. But there is a way for you to lower your prices strategically.
The value of handmade should still be there, otherwise, consumers will just buy mass-produced products to get an even cheaper price on items similar to yours. That means you should still be offering products that are different from what can be found in big-box stores and offering quality craftsmanship that rivals mass-produced products.
You may reduce prices by:
A) lowering your costs
B) reducing your profits (don’t remove profits though)
C) both A & B
Carefully consider the strategy of lowering your prices to encourage purchasing before implementing it.
>> Reducing costs to reduce prices may result in a lower-quality product. If you’ve built your brand on high-quality products (and service), this may cause more harm than good.
>> Reducing your profits to reduce prices may mean there’s less money to invest back into your business and you may not see the growth you have in past years.
If your reduction in prices is temporary and you don’t want consumers to associate low prices with your brand, be sure to mark prices as “sale” prices. That way, consumers can still see what the regular price is and will understand the decrease in price is temporary.
Here are a few ways to lower the prices of your products to encourage more sales.
As I mentioned in this article on how to help your business survive this pandemic, if you’re in a dire situation and need to move stock, lowering prices on existing products (before you’ve reduced costs) may be appropriate.
But moving forward, for new products you make, you must make changes to first reduce costs so you can then reduce prices or offer discounts.
You may reduce costs in the following ways:
There are a couple of ways to reduce costs through the materials you use:
1 – Use lower-quality materials for your products. For example, if I typically use wool or silk yarn for my knitted items, I may switch to cotton yarn.
2 – Purchase supplies in bulk. This will usually get you a better price (e.g. buying 1 yard of fabric may cost $5 but purchasing 5 yards of fabric may bring the price down to $4.50 per/yard). It also saves you money on shipping costs by only paying for shipping once. It will cost more to include additional items in one shipment, but not typically as much as the cost to ship each item separately. Or, if purchasing supplies from a store, buying in bulk will save you time and gas money by avoiding multiple trips.
Plan products in advance to be more efficient and reduce costs. Check out THE SUCCESS PLANNER for help organizing business tasks (such as planning products), saving money, and increasing profits.
Find ways to speed up production by:
1 – Improving your production techniques. You will naturally improve and speed up as you make a product over and over. You may also consider learning some new skills that help you create faster and avoid mistakes that have you undoing work or wasting materials. Check out CREATIVE LIVE for online classes for a variety of crafts.
2 – Batching each step. To speed up production, consider each step involved in the production of a product, then complete one step at a time for multiple items. For example, if I needed to make 20 tote bags, I would cut pattern pieces for 20 bags, then sew the handles for the 20 bags, then sew the body of the bag, etc.
Consider which product features are essential and which are ones your customers could do without/don’t benefit from.
For example, if I wanted to reduce the price of my handbags I might remove the zippered pocket from the interior. It would reduce my material and production costs because I wouldn’t need to buy a zipper for each bag, and it would be quicker to sew a basic pocket. The zipper on the interior pocket is not likely something my customers would miss or a feature they would be willing to pay extra for (given the option).
Look for ways you can reduce your operating expenses. Think of these expenses as anything you spend money on outside of your products.
To reduce your overhead expenses, you may:
- Find a better price for website hosting
- Reduce Etsy listing fees by refining your product selection and only listing best sellers (check out: HOW TO KNOW IF YOU’RE OFFERING TOO MANY PRODUCTS)
- Make fewer trips to the post office to ship orders
- Cut back on paying for ads
- Reduce membership fees (e.g. a membership for photo editing service; use a free service instead)
Overhead expenses are costs that must be covered by your business, so they should be worked into your product prices.
If you sell 20 items per month, the sale of those 20 items should cover the costs of materials to make those 20 items, your wage for the time you spent producing them, AND your monthly website hosting fees, Etsy listing fees, time and gas spent driving to and from the post office, and any other task you spend time or money on to run your business.
When you reduce those costs, you can reduce your product’s prices.
Another way to pass savings to your customers is to reduce your profit margins.
Profits are how much money is left from the sale of a product after you’ve subtracted costs.
On a bigger scale, profit is what’s left at the end of the year after you’ve paid all your bills, wages, and taxes.
Reducing your profits also means your business will be taxed less (because it’s only taxed on profits; not revenue).
Learn more about taxes in LAWS FOR SELLING HANDMADE
Profits are typically used to:
- Invest back into your business to grow it
- Create savings for a rainy day (such as a recession)
- Pay off debt (e.g. if you took out a loan to start your business)
- Pay yourself, or shareholders, a bonus
Your business needs profits, however, if you reduce profits and it means you’re simply not putting as much money into savings for a rainy day, or aren’t paying down your debt as quickly, your business still remains operational and profitable (just not as profitable).
As mentioned, you should never price products in a way that leaves you with no profits (unless you’re in a dire situation and simply need to recoup costs). You would only reduce profits.
Let’s say I sell a handbag for $100. If $60 of that sale is profit, I could reduce my profits to $30 and charge customers $70 for the bag, instead of $100.
I would still be getting paid for time and money spent on the business (because that’s covered under costs, not profits).
I would simply be reducing my profits.
Here are a few ways to strategically reduce profits:
Deciding not to sell your products wholesale can allow you to reduce your prices.
If you decide to go this route, it should be a long-term strategy.
Ensure you’re not tarnishing any existing relationships with retailers if you plan to drop your prices. Running a sale is one thing, but selling your products on your website at a fraction of the price retailers are selling them for would be undercutting those retailers; not a good business practice.
This strategy allows you to lower your prices without worrying about undercutting retailers, and you don’t have to set retail prices to include profits when selling at wholesale prices.
Let me explain that a little more…
If you want retailers to carry your products in their stores, they expect to buy them from you at about half the price you charge customers. That allows them to then sell your products for double the price they paid you, so they can cover their expenses and make a profit.
This means, when you sell your products at wholesale prices to retailers, you only make half of what you would if you sold the product directly to a customer.
For example, if the retail price for one of my handbags is $100, customers buying directly from me would pay $100. If $25 of that covers my production costs and $10 covers a portion of my overhead expenses, I’m left with $65 profit.
If a retailer approaches me and wants to carry that bag in their store, they would only pay me $50 (which would be the wholesale price of a $100 bag). I still must cover production and overhead expenses ($35 total) but am now only left with $15 profit.
If I decide to not to sell my products to retailers, I could set my retail prices at the wholesale price (customers would only pay $50) and I’d still make a profit, or I could choose a price somewhere between my wholesale and retail price (e.g. sell the bag to my customers at $75 and profit $40).
If you decide to go this route, you must be prepared to turn away retailers if you’re approached by them. Because if a retailer were to see my bags priced at $50, they’d expect to only pay $25 for them at wholesale price, which would not leave me with enough money to cover my overhead expenses or make any profit.
You may reduce prices, which decreases your profits per sale, but if you’re able to sell more units, you may be able to keep your overall profits the same, or even increase them.
As your sales increase, so do your costs.
For example, if I list more products on Etsy to increase sales, I’ll need to spend more on listing fees. If I spend more time marketing on social media, those are additional hours I must be paid for.
However, if you’re getting a return on investment for each task, you should be able to keep your profits on par.
For example, if I spend an extra $50 a month on Facebook ads (cost and wage), and those Facebook ads help me sell $150 worth of products, I will have covered my costs ($50) with money leftover; giving me a return on investment (ROI).
More on tracking the ROI of each task you work or spend money on and how to increase your return on investment is found in THE SUCCESS PLANNER.
You may increase volume sold by:
1 – Simply lowering your prices. Reducing your profits per product to reduce prices could, on its own, encourage more people to buy. Although you may be profiting less on each sale, the increase in sales due to lower prices could end up increasing profits overall.
2 – Increasing marketing and sales channels. For example, if I wanted to sell more of my handbags this month I may do so by:
- Listing my products on additional sales platforms (here are 30+ Etsy alternatives)
- Sending a newsletter once per week, instead of once per month (check out HOW TO START YOUR NEWSLETTER IN 10 MINUTES as well as A YEAR’S WORTH OF NEWSLETTER IDEAS FOR YOUR HANDMADE BUSINESS)
- Implementing a new social media strategy that helps my posts go viral, getting them in front of new people and driving more traffic to my shop (Here’s a strategy you can try)
Let’s take a look at how I might lower my prices, which would lower my profits per unit, but increase volume sold, to increase overall profits.
Let’s say these are the numbers for one of my handbags:
>> $100 retail price
>> $35 costs per bag (production & overhead)
>> $65 profit per bag
>> Average volume sold per month is 20 units
>> Monthly profits would be: $1300
Let’s say I’ve reduced the price of that handbag to $75. Now my numbers are:
>> $75 retail price
>> $35 costs per bag (production & overhead)
>> $40 profit per bag
>> Average volume sold per month is 20 units
>> Monthly profits would be: $800
Now I’ve started listing my products on new platforms and am spending more time marketing, so perhaps my overhead costs go up by $5 per unit, which leaves me with $35 profit on each sale.
But those additional sales channels and marketing efforts help me sell more units per month.
I only need to sell 18 more units per month (38 units total) for my profits to be similar to what they were before I dropped the price of my bags.
>> $75 retail price
>> $40 costs per bag
>> $35 profit per bag
>> Average volume sold per month is 38 units
>> Monthly profits would be: $1330.
OTHER WAYS TO ENCOURAGE SALES NOW
If lowering your prices isn’t an option, here are a few other ideas to encourage shoppers to buy from you now.
LET CUSTOMERS KNOW YOU NEED THEIR HELP
Sometimes it’s a matter of simply asking for help. Customers who have supported your business in the past will feel a connection to you and your business and care about what happens to it.
If your business is struggling to stay open during this pandemic, let your loyal customers, followers, and admirers know so they can help, if they’re in a position to.
You may send a newsletter to your subscribers, post to social media, or add a message to your website letting people know you’re doing everything you can to keep your business open during this difficult time and every sale helps.
If you sell products with higher price points, it may be appropriate for you to accept payments in installments.
Square offers a payment plan option, which you can read about here. They pay you the total upfront, and then the customer pays Square in installments over time. Which is nice because if the customer misses a payment, it doesn’t impact you.
If you use a different service to accept payments, one that doesn’t pay you upfront, be sure to protect your business.
For example, if you sell art and allow customers to pay for a piece in installments over 3 months, it’s likely best not to ship the piece until the end of the 3 months, when all payments have been made.
BUY NOW RECEIVE LATER
Many people don’t want to bring non-essential items into their homes right now, but you can offer to hold items for customers (after payment is made) and drop off or ship them at a later date.
You may also offer a discount to people who are willing to buy now; months before they need your products.
For example, it may be a while before an engaged couple will be ready to send out invitations. But if I create wedding invitations, I may offer to sell them now, at a discounted price, then design, print, and ship them once they’ve chosen a date.
This would be another form of pay now, redeem later. If you have the ability to sell and accept gift cards, it’s a great way for people to support your business during the pandemic (if they have the ability to spend money now but want to shop your products in person when craft shows start again).
Gift cards are also great for gift-giving and allow people to send gifts to people they won’t be able to see for holidays or birthdays.
LINKS SHARED IN THIS ARTICLE:
- HOW TO KNOW IF YOU’RE OFFERING TOO MANY PRODUCTS
- WHERE TO SELL HANDMADE ONLINE (BESIDES ETSY)
- HOW TO START YOUR NEWSLETTER IN 10 MINUTES
- A YEAR’S WORTH OF NEWSLETTER IDEAS FOR YOUR HANDMADE BUSINESS
- 5 STEPS TO VIRAL SOCIAL MEDIA POSTS FOR YOUR HANDMADE BUSINESS
- THE SUCCESS PLANNER
- LAWS FOR SELLING HANDMADE