Why do mega corporations offer add-on products?

by | Aug 1, 2020

Hey, I’m Michael Eckstein 👋, and this is ‘Ordinary & Necessary’, a weekly newsletter about the boring business topics that don’t get enough traction on the web, but will help you manage and grow your business. You signed up on my website. If you’d like to unsubscribe, just click the link at the bottom of this email. No harm, no foul, I’d love to have you back sometime.

Month’s theme: add-on products or services

Add-ons are everywhere. They’re so prevalent that we don’t always notice them. All those candies, gum, and magazines by the checkout counter? Add-ons. The support package with your newest tech purchase? An add-on. Or, the most famous one, “Would you like fries and a drink with that?” An add-on. If you really wanted, you could list dozens of add-ons that we see in our day-to-day lives.

Yet, you rarely see add-ons in service businesses (outside rush fees). And, honestly, I can’t even remember the last time I read someone suggesting it. But, all these retail businesses can’t be wrong. There’s a reason these mega corporations offer add-ons and that’s because they work. Add-ons are an easy and reliable way to increase your profit per customer. Adding a few more dollars to a sale is huge and, at scale, these add-ons account for millions of dollars in extra profits.

Why add-ons work:

Increases the overall purchase price: First and foremost, add-ons increase the overall purchase price and, if done right, the overall profit of each sale. That means you can increase your profit without additional marketing spend to get new leads, without additional sales negotiations to close new clients, and, without taking on a large new project that reduces your availability.

Easy sell to a consumer: Add-ons practically sell themselves. Reread my examples in the first paragraph. You’re never sold on any of those add-ons. They’re offered to you while you’re making a purchase and you decide whether you want it or not. Apple doesn’t hard-sell you on the support package. You sell yourself.

Repeatable: Add-ons are easily repeatable. There’s little-to-no variation from one add-on sale to the next. That makes them easy to offer and easy to deliver which leads to a streamlined process and even higher profits on the add-on.

THIS WEEK’S ACTION ITEM: Think back on your recent purchases. Have you been buying a lot of add-ons?

Have a great weekend and stay safe!
Michael Eckstein

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