No matter which way you slice or dice it there is fundamentally only two ways you can grow your revenue – increase prices or increase volume by selling more.
To sell more a business has three options:
- Sell more of your current products or services to your existing customers.
- Sell new products or services to your existing customers.
- Sell to new customers.
Which strategy you choose will depend mainly on how you compete in the market (eg. is your product or service the cheapest or the best); how competitive the market is; and the capacity and constraints of the business.
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If you have surplus capacity then it makes sense to grow by selling more. However, if you are already at full capacity, then a strategy which increases volume, will require an investment to increase the resources of the business.
Increasing prices is an approach that many business owners feel nervous about, but it’s one that gives you the best return for very little additional investment.
An increase in pricing typically goes straight to the bottom line and can increase profits quickly, provided you don’t lose too many customers in the process.
This strategy is best suited to businesses whose value proposition is based around quality, value and high levels of customer service.
It is difficult where the market is competitive and customers are price sensitive.
Set your prices based on what your good customers are willing to pay, rather than being influenced by the demanding few.
After all, your good customers make up the majority of your customer base. Also consider what your potential customers and ideal target markets will pay.
You should understand and articulate the value or perceived value of what you deliver to your customers. You might identify hidden value you can use to your advantage or find low cost ways to increase the current value of the product to justify a price increase.
This could be as simple as making your customers more aware of all the benefits, or gaining a 1 or 2% efficiency in how you produce or deliver your products and services.
If you can do this without adding costs or with minimal additional cost, then your margins and profits will increase.
Selling more of your current products and services to your existing customers is also a highly effective way of growing your business. When you consider it costs six to seven times more to acquire a new customer, selling more to existing customers makes economic sense.
A good starting point is to find ways to educate your customers about your full range of products and services.
Do this every time you interact with them. Better still, encourage them to buy more by packaging your products and services.
You could also offer them options that provide additional value with a higher price tag. Show them comparisons that highlight the extra value for a small additional cost when you buy option two instead of option one.
Doing this often demonstrates added benefits, features or convenience to the customer and many will upgrade their purchase.
Selling new products and services to existing customers is a strategy that can work well, provided the new product or service leverages existing customer relationships.
It should also be consistent with and reinforce the brand identity of the business. Apple is a good example of this.
It is not unusual for Apple devotees to own an iPhone, iPad, iPod and also a Mac computer.
Ask yourself the following questions:
- What are customers buying from someone else that you can easily provide?
- Is there some special treatment you give to one or two of your very best customers that you can productise and sell to the rest?
- Do you have knowledge, processes or intellectual property not currently available on the market that you can capitalise on?
- What jobs or tasks are your customers performing that you can efficiently and cost-effectively help them solve?
Test new products and services with a selection of your clients and refine them before proceeding to a full scale launch. This will allow you to spend wisely and determine the best pricing point for them as well.
Selling to new customers is generally the hardest way to grow your business. Winning a new market often requires a significant investment to build distribution channels and in ongoing marketing campaigns to establish a presence.
The best way to enter a new market is to use your existing happy customers as centers of influence. These customers effectively become your unpaid sales force, spreading the word about your business and acting as the “link” to your new target customers.
The saying goes, that like attracts like, so the next time you meet with your best clients, ask them to tell their friends and associates.
Their positive experience and delight in talking about it, can act to send a steady stream of business your way. Simultaneously it acts to validate their own decision to keep buying from you.
Whichever growth strategy you decide to implement, it’s important to keep a close eye on the results by measuring them.
Building some of the following KPIs into your monthly financial information and reporting will help sharpen your focus and assess the impact of your efforts:
- Average transaction value by customer
- Conversion rates from enquiry to meeting to sale and repeat sale
- Cost per lead
- Cost per sale
- Profit per sale by product / service line or customer segment
- Number of purchases per customer
- Referrals per customer
- Cost per click (online)
Marc Peskett is a partner of MPR Group a Melbourne based firm that provides business planning and advisory services as well as tax, outsourced accounting, grants support and financial services to fast growing small to medium enterprises. You can follow Marc on Twitter @mpeskett