The Power of Pre-Sales

It’s often stated that sales are the lifeblood of a business, that sentiment indeed holds true. Sales is a broad term for the route cash takes to enter a company’s books, there are varying types although one stands out as more powerful and consequential than the others, especially in the initial growth phase of a business: pre-sales.

While most sales can be defined in a straightforward manner, have a product, entice someone to part ways with cash for that product(s) and repeat until a business grows. But what happens if your business doesn’t have said product or service yet? After all it takes time to produce, market and stock an item and have it ready for a potential client to survey or test drive before buying. The solution lies in leveraging pre-sales.

While pre-sales, can come in a variety of forms, the principle is relatively the same: receive an advance on the item or service your business is selling in return the buyer receives an incentive or concession for the early purchase. If you look closely, almost every successful business engages in some form of pre-selling, yet a majority of small businesses we encounter have not even worked it into their sales strategy at all.

There are many examples of pre-sales we have seen and even engaged in over the years. Some of the most prevalent occur within the entertainment and recreation industries. Publishers are masters at the pre-sales strategy, almost every single one has a whole campaign lined up for buyers to “pre-order” a new release or publication. Authors are routinely sent out across the country and on social media “plugging” their future best seller, the infamous book tour every celebrity seemingly inevitably engages in at some point in their career. Everyone these days seems to be caught up in the scandal du jour; is rewarded a lucrative book deal and the subsequent tv and press appearances selling their book, often times months before it’s actual release date.

The hype gets buyers to “pre-order” with an incentive, whether that be a signed copy, special edition, or a discount if bought before the release date. This simple practice allows publishers the ability to gage interest, assess different market behaviors, understand demographics or viability of the release as well as accrue capital in advance which is deployed to market, and fund full production.

Another common area where this practice is on display is the travel industry. When booking a hotel, Airbnb or a flight, more often than not customers end up placing a “deposit” to hold the room to “reserve” a trip. When buying from airlines, we often pay the whole fare up front, sometimes months in advance. These are all pre-sales, just conducted differently with varying amounts of cash needed up front and offer added perks for travelers. Booking a flight in advance can save a flyer $100s, reserving a hotel via a deposit guarantees you get the room with the ocean view you deserve. All sweet bonuses, all money up front for the business, achieved without any product trading hands.

This tactic is so useful, in fact, famed Billionaire and entrepreneur Richard Branson started his airline business Virgin Atlantic using this practice. Branson realized through using pre-sales and the airline industry standard of advanced bookings, he’d be able to fund operations. Branson got to work leased a Boeing 747, decked it out in his branding, hired crew, and fuel etc. all for $0 out of pocket. How? He started out by selling bookings on one flight, from London to NY and back, which would run every day. By leveraging the power of pre-sales, passengers as they do, reserved their trips through purchasing tickets, weeks and months ahead for the whole calendar year. Branson was selling out a plane he had yet to own or fly 10, 20, to 50 times over.

Needless to say, this venture of his was widely successful, spurring on something even more grandiose: Virgin Galactic, flights to space…which he financed the same way of course, by individuals reserving their tickets to in advance of the project build. You get the idea.

Most entrepreneurs aren’t running a business as complicated as sending people to space, and even if they were this same principle still applies. Pre-sales, reservations, advanced bookings, however they may be referred to, are a golden ticket to cashflow particularly at a time when emerging businesses need it most: at the outset of operations. It’s so widely employed by successful operations it’s almost as if it were a universal business law, yet most newer entrepreneurs often times continuously neglect this strategy altogether.

I often hear how newer businesses are unable to get off the ground whether it be due to low inventory, or that production costs can’t be met. Business owners are left unable to gauge demand, or understand which product to promote over another, who to market to directly and so on. These common issues can all be greatly addressed through a robust pre-selling strategy and subsequent implementation campaign. The way to effectively launch this effectively is to peak interest, incentivize a purchase, and get money in the door, then use information from the direct sales or interactions to elicit effective change. Rinse and repeat and you’re off to the races.

Your mindset must be switched up, instead of thinking why it won’t work, focus on how it will, that’s where things can begin to fall into place.

To gain personalized guidance for your business on this topic and others contact us.

- Vince Calace

Founder - Venture Business Development