Podcast Episode 6: Maximising Every Sale with Average Dollar Sale
Welcome to The 255, where we make business easy.
If you’ve ever felt overwhelmed by the complexity of running your business or unsure about the right steps to grow profitably, you’re in the right place.
I’m Arnold Shields, and I specialize in breaking down complex business challenges into simple, actionable steps that anyone can understand and implement.
In this podcast series, we’ll talk about a powerful framework I’ve developed called The 255.
It’s all about the 2 Fundamentals, 5 Multipliers, and 5 Foundation Stones that serve as the blueprint for building a thriving, sustainable business.
Whether you’re just starting out or running an established company, this framework gives you the tools to make smarter decisions, increase profitability, and unlock the full potential of your business.
Why listen to The 255? Because running a business shouldn’t feel overwhelming.
My mission is to make even the most complicated aspects of business easy to grasp and practical to apply.
From understanding cash flow to leveraging growth multipliers, I’ll share strategies and insights to help you take control of your business and build long-term value.
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In our last episodes, we tackled 2 out of our 5 Multipliers in the 255 Framework - Leads and Conversion Rate.
Now, we’re going to talk about Average Dollar Sale.
The average dollar sale is one of the most powerful revenue drivers in your business
It’s a simple metric with massive impact.
Essentially, it’s the total revenue divided by the number of transactions.
Whether you call it average transaction value or average order value, ADS shows how much customers are spending on each purchase—and optimizing it is one of the smartest ways to grow your revenue without needing more customers.
The first component of Average Dollar Sale is the price you charge and that has a massive impact on your Contribution Margin.
Decreasing your price has the effect on two multipliers - decreasing your Average Dollar Sale and decreasing your Contribution Margin
I believe that decreasing your price should be the last area that you try. It is too easy to get more sales by offering a discount but price can hide a poor offer or conversion rate, a cheap price can distort your leads generation strategy. Are you getting more leads because you are the cheapest.
Being the cheapest is a very expensive strategy to employ from a cashflow and risk perspective. It needs more capital or cash to fund more inventory and risk if something goes wrong you are very exposed in terms of excess inventory or just not having enough margin to ride through the problems.
If your contribution margin or gross profit rate is 30% and you discount your price by 10% then you need to sell 50% more to achieve the same level of profit.
If you discount by 20% you need to sell 3 times as much to achieve the same level of profit.
Your focus should not be how you can discount or reduce your price but how you can increase your price. If you have an excellent source of high quality leads and an unbeatable sales offer, then you can increase your price.
In very few businesses do you need to the cheapest, the market leaders selling the most volume. You need to be the most profitable
Why is that so important?
Because increasing your average dollar sale means you’re making more money from the same customers, maximizing the value of every transaction.
The ADS reflects two key things: the price you charge and the value you add through upselling, cross-selling, and bundling.
Think about it this way: It’s the total revenue generated per transaction.
The formula is simple, but the opportunities are huge. Increasing ADS doesn’t just boost revenue—it enhances profitability by getting more out of your existing customer base.
When you combine ADS with leads and your conversion rate, you get your total revenue. =
Here’s the equation:
Leads × Conversion Rate × Average Dollar Sale = Total Revenue.
So if you can increase the average dollar sale, you’re growing your business without adding new customers.
That’s a win-win.
How Do You Increase It?
1. Increase your prices.
This produces the biggest impact. To your profits and cashflow. You would probably say my sales will fall. Yes, but your profits and cashflow will increase and offset the decrease in top line sales. A discount of 20% requires 3 times more sales to delivery the same level of profit.
Remember someone is always prepared to spend more if it delivers what they want or need. If the value proposition is strong enough you will be able to charge higher prices.
2. UpsellingUpselling is all about encouraging customers to choose a higher-priced option or add premium features.
Think about when you’re buying a car, and the salesperson suggests upgrading to leather seats or a sunroof.
The same principle applies across industries—emphasize added value, and customers will often spend more.
3. Cross-SellingCross-selling is offering complementary products. The classic example? “Would you like fries with that?”
It works in any industry.
If someone buys a laptop, offer them a mouse or a software package.
You’re adding value to their purchase while increasing your ADS.
4. Product BundlingBundling combines related items into one package at a discounted price.
For example, a skincare brand might bundle a cleanser, toner, and moisturizer.
Customers see the bundle as a deal, and you increase the transaction value you make savings in terms of the costs of leads and conversions which should offset any discount offered.=
5. Volume DiscountsEncourage larger purchases with incentives like “Buy three, get one free.”
This works especially well in retail and subscription services.
Customers feel like they’re getting more value, and you boost your revenue.
Again the trick to offering volume discounts is covering with price discount with savings in lead generation (advertising) and savings in your contribution margin like shipping and handling.
6. Loyalty ProgramsReward repeat customers for spending more. Offer points, discounts, or exclusive perks based on their spending.
A good loyalty program doesn’t just increase ADS—it builds long-term relationships.
7. PersonalisationPersonalised recommendations—whether online or in-store—are game-changers. You can charge more for personalisations
If a customer feels like your suggestions are tailored to their needs, they’re more likely to add items to their cart.
Invest in tools or training that help you make smarter recommendations.
8. Enhance the Shopping ExperienceA seamless shopping experience makes a huge difference.
Whether it’s an easy-to-navigate website, fast checkout, or clear product information, a positive experience keeps customers engaged and spending more.
The Impact of ADS
Let’s break it down with an example. Imagine a retail store generates $100,000 in revenue from 2,000 transactions—an ADS of $50.
By implementing strategies like bundling and upselling, they increase the ADS to $70.
That’s a 40% improvement, bringing total revenue to $140,000 without adding a single new customer.
That’s the power of focusing on ADS!
Improving your average dollar sale is one of the smartest ways to drive growth.
By upselling, cross-selling, bundling, offering discounts, or simply creating a better shopping experience, you can generate more revenue with less effort.
Remember: It’s not just about immediate sales.
These strategies build stronger customer relationships, improve loyalty, and set your business up for long-term success.
Now, let’s talk about price theory—a core concept in economics that helps us understand how prices are set and how they influence just about everything in a market, from resource allocation to consumer behavior.
If you’ve ever wondered why prices fluctuate or how businesses decide what to charge, price theory holds the answers.
At its heart, price theory revolves around supply and demand—the forces that drive markets.
Here’s the basics:
Supply is what producers are willing to offer at different price points.
If prices go up, supply usually increases because producers want to capitalize on the higher profits.
Demand is what consumers want to buy at different prices.
As prices rise, demand tends to fall because people either can’t afford the product or don’t see it as worth the cost.
These two forces meet at the equilibrium price, the sweet spot where supply matches demand.
At this point, the market is balanced—there’s no surplus (extra goods) or shortage (not enough goods).
Price Elasticity - Why Prices Matter
One of the most fascinating aspects of price theory is elasticity—how sensitive supply and demand are to price changes.
For goods with elastic demand, a small price increase can cause demand to drop significantly. =
Think about items like sugar or coal, where there are plenty of alternatives.
Inelastic demand, on the other hand, means people will keep buying even if prices rise—like life-saving medication or basic utilities.
The same applies to supply. If supply is elastic, producers can quickly ramp up production when prices rise.
But with inelastic supply, production stays fixed regardless of price changes, often because of limited resources or time constraints.
Surpluses - Benefits for Buyers and Sellers
Price theory also explains the concept of consumer surplus—the extra benefit consumers get when they pay less than what they’re willing to pay.
And then there’s producer surplus, the benefit sellers gain when they sell at prices higher than their minimum acceptable price.
Together, these surpluses highlight the value created in a market.
The way prices are set can vary widely depending on the type of market:
In a perfectly competitive market, prices are purely driven by supply and demand.
In a monopoly, a single seller dominates and sets prices to maximize profits, often leading to higher prices and lower quantities sold.
In an oligopoly, like the smartphone market dominated by Apple and Samsung, a few large players influence pricing, sometimes by competing and other times by aligning their strategies.
In monopolistic competition, businesses sell differentiated products, giving them some control over pricing but still facing competition.
Practical Applications of Price Theory
Price theory isn’t just an academic idea—it has real-world applications. Businesses use it to develop pricing strategies:
Real-World Example - Smartphones
Let’s bring this to life with the smartphone market. Manufacturers like Apple and Samsung supply phones, adjusting production based on potential profits.
Consumers, meanwhile, decide how much they’re willing to pay, balancing price against features like battery life or camera quality.
At the equilibrium price, the number of phones supplied matches the number demanded. But elasticity is at play too:
And don’t forget surpluses:
Why Price Theory Matters
Understanding price theory helps businesses forecast demand, set competitive prices, and make smarter decisions.
For policymakers, it’s a tool to design economic policies that balance growth and stability.
So, whether you’re running a business, analyzing a market, or just curious about why things cost what they do, price theory offers invaluable insights into how markets work.
At its core, price theory is about balance—matching supply with demand and ensuring resources are allocated efficiently.
Pricing strategies are one of the most powerful tools in your business toolkit.
How you set your prices can make or break your product’s success, especially in competitive markets.
Let’s me share some key pricing strategies, their uses, and how to leverage them effectively.
1. Premium PricingFirst up, premium pricing—this is all about setting a high price as a defining feature of your product.
It’s a strategy that says, “This product is exclusive, high-quality, and worth the price.”
Think luxury brands like Bose or Apple.
This strategy works well if your product offers superior quality or unique value that justifies the higher price.
2. Penetration PricingNext, there’s penetration pricing, where you set prices artificially low to quickly gain market share.
This is especially effective when launching a new product.
Once you’ve built a solid customer base and collected reviews, you gradually raise the price.
This approach is super common on Amazon—launch low, get traction, then increase as demand grows.
I don’t recommend this to small businesses, they just dont have enough capital to fund the losses and extra inventory.
Woolworths and Coles, the two big supermarket chains in Australia engaged in a price war for market share. It cost each of them $1billion in lost profits before they called it quits.
3. Economy PricingFor those aiming at the mass market, there’s economy pricing.
It’s no-frills pricing, where margins are razor-thin, marketing costs are minimal, and the focus is on high volume and low overhead.
This strategy works well for businesses targeting large-scale market penetration, but remember—it’s all about volume.
4. Price SkimmingThen there’s price skimming, ideal for innovative or unique products.
You start with a high price to maximize profits while your product is hot and competitors are scarce.
Over time, as competitors enter the market, you lower the price. It’s a bit risky—especially in fast-moving spaces like Amazon—but it can be highly profitable if executed well.
For instance, imagine you’ve launched a revolutionary gadget. You price it high to capitalize on its exclusivity.
As competitors come in, you gradually reduce the price, staying competitive while maintaining market share.
How Amazon Sellers Approach Pricing
When I talk to Amazon sellers, the conversation often revolves around two pricing models:
In between, there’s a lot of guesswork—pricing that doesn’t have a clear objective.
But the key takeaway here is that your pricing strategy should align with your goals, whether that’s dominating the market or maximizing profits.
Pricing Competitively
When setting prices, you need to think about competitiveness.
For example, let’s look at Bluetooth noise-canceling headphones.
If you pull up data—like I did using Jungle Scout—you’ll see brands like Sony and Bose dominating the high end at $350, with significant sales volume.
Below that, you’ll find a cluster of lower-priced competitors trying to capture budget-conscious buyers.
Your job is to figure out where your product fits into this landscape.
Are you aiming to compete with the big players, or are you targeting the mid-to-lower price ranges?
Pricing isn’t just about numbers—it’s a strategy that communicates your product’s value, positions you in the market, and influences buyer behavior.
Whether you’re going premium, penetrating a market, or skimming profits, your pricing should have a purpose.
Remember, your price isn’t set in stone. Be ready to test, adapt, and adjust based on market feedback, competition, and customer demand.
With the right approach, pricing can become one of your most effective growth levers.
So, that’s the rundown on Average Dollar Sale (ADS)—a simple yet incredibly powerful metric for driving revenue and profitability.
Here’s the key takeaway:
Increasing your average dollar sale isn’t just about adding dollars to your bottom line—it’s about maximizing the value of every customer interaction.
Whether it’s through upselling premium options, cross-selling complementary products, bundling items, or creating loyalty programs, there are countless ways to get more out of each transaction.
The beauty of focusing on ADS is that you don’t need to chase after more customers—you can grow your revenue by delivering greater value to the ones you already have.
So as you move forward, ask yourself:
Remember, even a small increase in your ADS can have a massive impact on your business.
Take the time to experiment, refine, and track your efforts. The payoff will be worth it.