How will you grow your business?
You may remember that in past articles I talked about how important it is to develop a solid business model.
What’s a business model? It’s the series of steps or processes that a business goes through in order to run and make a profit.
Those steps typically fall into five categories.
Value Proposition
Market Segments
Value Chain
Revenue Model
Growth Strategy
Today I want to go into more detail on one of those aspects— Growth Strategy.
What is a Growth Strategy?
This part of a business model has to do with long-term forecasting and planning. It deals with questions such as the following.
How will you ensure your company continues to thrive?
How will you increase your revenue over the next several years?
How will you protect your company’s assets?
What will you do if there is a downturn in the market, or if you suddenly have more competitors?
By addressing such questions and developing strategies and a plan for long-term growth, you help ensure your company will continue to be successful.
One of those growth strategies is creating a plan for how you will increase your revenue, and that’s what I’ll focus on for the rest of this article.
The 3 ways to increase revenue
There are three generally accepted ways to increase revenue. (This list has been popularized by Jay Abraham).
Find more clients
Sell more products/services to existing clients
Increase the price of your existing products/services
Which of those is the best for you depends on your particular business and the types of products/services you already offer. Let’s take a look at each of those three methods more closely.
Finding more clients
Finding more clients is a tried-and-true method for increasing revenues. It’s typically done through advertising. Getting the word out about your business and its products/services means more people will visit your store or website, and that can lead to more sales.
However, more customers can also mean more costs. For example, if your business becomes very busy, then you might need to hire more staff to serve them all.
Here are some other pros and cons that can come with using the “find more clients” approach.
Pros
You add to your list of past clients (who may be repeat customers).
More clients means more opportunity for testimonials.
It also means more possible word-of-mouth advertising.
Cons
Finding new clients takes time (finding leads, qualifying, etc.)
It takes money (advertising, hiring new staff, etc.)
More time is required for customer service (more customers = more overall time).
Selling more products to existing customers
Having one product is great. But if it’s the kind of product people only buy once, or only once in a while (e.g. a lawyer taking care of the legal aspects of buying a house), then you don’t have the opportunity for much repeat business. But if that same lawyer also offered various other legal services (wills, divorce, contracts, legal aspects of starting an incorporation, etc.) then she has just multiplied the possibility for repeat business from the same customer by several fold.
But, in order to sell more products to the same customer, you have to, of course, develop several products, and that takes time, and sometimes money.
Here are some of the other pros and cons of using the “sell more products to existing customers” method.
Pros
More products mean more opportunities for sales.
It is easier to sell to a past (happy) client than to find a new one. That’s because past clients already know and trust you. And that means less effort on your part to make another sale.
Cons
It takes time to develop new products (research, testing, advertising, etc.)
It can cost money (to pay staff to develop the product, to develop new ad campaigns, etc.)
More products means more time and money spent on production and inventory.
Increasing the price of your product/service
This is the easiest of the three methods to implement. It has been particularly popular during covid. Prices have gone up just about everywhere. That’s because the other two methods haven’t been working as well—you can’t get new customers when your business is shut down or allows fewer people in the store, and developing new products if people just aren’t buying may not be a good strategy.
So the only way some companies had to keep afloat, let alone grow, was to raise prices. But it was already a popular method before covid. People are used to price increases—it’s a normal part of life. And small increases might not affect the purchaser too much, but that small change across all your customers might make a big difference to you.
As with the other approaches, there are other pros and cons.
Pros
It takes little effort—you just change the price! (but see the cons section below)
You get almost immediate benefit (little development/research time needed)
Cons
Raising the price may make it harder to close sales.
If your prices were lower than your competitors’, charging more may cause you to lose a competitive advantage.
Depending on your product/service, you may have to put in a lot of work to change the prices in your accounting system, inventory system, on packages, etc.
You may lose customers who don’t want to pay the higher price.
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So those are the three ways you can increase your revenues. Which one (or ones) makes the most sense for your business will depend on a number of factors: business type, economic climate, location, client type, product/service, etc.
You can even combine two or all of these methods to get an even bigger boost to your revenue. But remember, any of these methods requires thought, planning, and work, not only to implement them, but to maintain them.
Cheers,
Tim
Helping you engineer the business of you
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Information in this article is for general information and is not intended as professional advice.