Ancillary RevenueRevenue earned from other goods and services

A business often sells a certain type of product or service.

An ice cream shop will mainly sell ice cream.

A meat shop will mainly sell meat.

A t-shirt printing business will mainly offer t-shirt printing services.

Did you notice that I inserted the word “mainly” in each of my examples?

A business will have its main offering and it could be either a product or a service.

But aside from its main offering, a business may also be selling or providing other goods and services.

A prominent example of this is a gas station.

A gas station mainly sells gasoline (the kind that fuels vehicles).

But sometimes, a gas station may also provide other goods or services.

They may sell lubricants and brake-fuel or they may offer maintenance services such as oil changing or refilling the air for your tires.

Also, the gas station may double as a convenience store, selling a wide assortment of products (as you would often see in road-trip movies).

We refer to revenue earned from goods or services other than a business’s main offering as ancillary revenue.

Most businesses have some form of ancillary revenue.

There are also cases where ancillary revenue overtakes the revenue generated from a business’s main offering.

In this article, we will be learning about ancillary revenue and how it affects your business.

Ancillary revenue can increase your business’s total revenue, as well as facilitate its growth.

That’s why it may be beneficial for you and your business to learn about it.

We will be also looking at ancillary revenue earned by businesses from different industries.

Ancillary Revenue: What is it?

Ancillary revenue refers to the revenue earned from goods or services that differ from a business’s main services or products lines.

It could be something that accompanies a product such as a warranty or an accessory.

Or it could be a good or a service that improves the business’s main offering.

For example, think of this scenario: you go to a computer shop to purchase a laptop.

You find the laptop that meets your specifications and you go to the counter to pay for it.

As you are going through the checkout process, the person at the counter upsells you an extended warranty.

They also offer you an external hard drive saying that you can use it as extra storage or as a backup for your files.

If you choose to purchase the extended warranty and external hard drive, then the computer shop earns ancillary revenue on top of the revenue it earns from the laptop sale.

Ancillary revenue is often the by-product of innovation or the introduction of a new product or service.

Or it could be that the business is trying to tap into a new market.

By catering to a new customer demographic, the business will have to think of products or services that will make these new customers want its main offering.

In some cases, what was once ancillary revenue may become a business’s main source of revenue.

Some businesses within certain industries actively look to improve their ancillary revenue.

For example, hotels mainly earn revenue from renting out rooms.

However, in the pursuit to provide better customer satisfaction, hotels may provide extra products or services such as the option for high-speed WiFi or late checkout/early check-in for an additional fee.

Tips for Increasing Ancillary Revenue

Review your existing range of products and/or services; Identify products or services that either appeal to your customers or improve their perception of your existing products/services

Depending on your business’s main offering, it might be catering to a certain demographic.

This provides an opportunity for the business to earn more by offering products or services that target this certain demographic.

For example, a business that markets construction materials will mainly cater to customers within the construction industry.

This allows the business to create ancillary revenue from the sale of specific workwear (e.g. helmet, safety vest) and other personal protective equipment (PPE).

It could offer building enthusiasts instructional videos on do-it-yourself building projects and even on the basics of construction.

Identify services or products that add value to your existing range of products and/or services and offer them to your customers

Offer something that adds value to what you currently offer.

This is one of the strategies that you can employ if you want to increase ancillary revenue.

For example, hotels offer extra services that improve customer experiences such as high-speed WiFi, or a great view of the city or the ocean.

Travel agencies, on top of managing travel arrangements, offer services that provide customer convenience such as car-for-hire, booking for theater or hotel tickets, and of course, travel tickets.

Another example, you might offer training services to your customers for very technical products.

This helps the customer become better accustomed to your products.

Or you could offer maintenance services to help keep the products they bought in top shape.

Promote your ancillary product and/or services

If your customer does not know that your business offers certain products or services, how will they be able to make use of them?

I mean, you can’t buy something that you don’t know exists, right?

That’s why you should promote them, ancillary products and/or services included.

Offer incentives to salespeople for selling ancillary products and/or services.

Let them know how ancillary products and/or services lead to more revenue.

Explain to them how they add value and/or improve customer experience.

As for the customers, let them know that you offer these ancillary products and/or services.

Explain to them how it improves their experience.

Let them know why they’re worth the extra fee.

Ancillary Revenue Across the Different Industries

Ancillary revenue is often associated with the airline industry.

If you search “ancillary revenue” in Google, you’ll find that most search results will include articles relating to the airline industry.

However, businesses from other industries have also started to give more importance to ancillary revenue.

Here are some examples of ancillary revenue across different industries:

• Apple Inc., well-known for its ever-popular iPhone, mainly sells tech hardware products such as the aforementioned iPhone, Mac, and iPad. However, Apple has also started to offer other products and services. In 2019, Apple generated over $10 billion in ancillary revenue from its wearables (e.g. earphones) and home accessories. Not only that, but Apple also earned $12.715 billion from ancillary services (including iTunes)
• Banks mainly earn revenue from interest charged on loans and other credit products. However, they also earn ancillary revenue from other services such as fund management services, wire transfer, and even equipment leasing services
• Hotels mainly earn revenue from renting out rooms. In addition to that, hotels earn ancillary revenue from extra products or services such as high-speed WiFi, in-room dining, room entertainment, valet services, etc. Hotels may also double as a restaurant or a bar, earning even more ancillary revenue from non-hotel services
• The airline industry earns ancillary revenue from non-ticket sales such as baggage fees and in-flight products (e.g. food, beverage) and services. Some airlines may also offer customer centric services (for an extra fee) such as the ability to reserve/choose seats, option for early boarding, frequent flyer programs, etc. Aside from that, airlines can also earn ancillary revenue from advertising (e.g. in-flight magazine, advertising on the aircraft’s interior and/or exterior, etc.)
• Fast-food chains, such as McDonald’s mainly earn revenue from their food products. However, some of these stores may also earn ancillary revenue by becoming conference or party areas