The Importance of Ancillary Revenue
Joe Lynch F CIM
CEO of ICOMIA. A marketing effectiveness and strategy development professional with a breadth of consumer experience.A specialist in digital transformation, marketing effectiveness and branding.A trusted advisor and NED.
Ancillary Revenue is defined as being the income generated from the sale of goods or services that are not the core focus of a business. They may not be core, but they are still very important.
Think of the popcorn at the cinema, the drinks on a flight, the meals at a hotel or the myriad of insurance policies, warrantee upgrades and consumables that come with most household goods. With the exception of the popcorn (surely more expensive than unicorn tears on a pound per pound basis) ancillary revenue is generally much smaller per transaction than that generated by the main transaction.
However, you overlook it at your peril.
We manage all of our marketing budgets, measuring in the finest detail the cost of acquisition of our core products or services, but as a result occasionally forget that whilst we’ve got the customer either in front of us, or in our online checkout, that a simple question or prompt can lead to additional revenue, for no more marketing spend. You’ve done the hard part of getting them to your check out – don’t waste this valuable opportunity now.
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It is also often the case that ancillary spend has very attractive margins (the popcorn again). We expect our customers to compare prices, reviews and product features for the considered part of their purchase. However once the purchase decision has been made – the extra sell can be very easy and very lucrative.
My advice is to break this down to a “per sale” metric, rather than see it as a bulk or amorphous revenue stream.
By way of example, I once worked with a network of accommodation providers and we quickly realised that if we could just sell one extra cup of coffee to each guest on each day of their stay, over ￡1million would fall to the bottom line. The point being that it’s much easier for your colleagues to understand and support “one coffee, per guest, per day” than it is to grasp the large corporate target.
We all work in very competitive industries, so your Ancillary Revenue Per Transaction can have a huge impact