Its Profits that are the real driver of long-term growth – Not Sales
So often we meet with clients and they are absolutely stoked that our monthly meeting has arrived. The excitement can be for several reasons – We’ve won this contract! “We’ve had this feedback”. “I’ve had X amount of extra time to work on my business, which has resulted in…” Sometimes, although this is a great short-term indicator of successful strategy implementation, they say, “we’ve increased our top line revenue by X.” And on further inspection this means nothing in terms of long-term growth because their associated expenditures have risen by the same amount or even more than the additional sales. In summary they could have worked less hours or sold less units for the same profit.
Let’s forget about the payback period of an upfront advertising spend that is a Return on Ads Spend (ROAS) discussion. Also, lets disregard collection of payments, that is a debtor management/Cashflow discussion. At the end of the day a business’ primary function is to make stuff and sell it. This could be a Product a Service or Both.
Increase the Amount of Stuff you Sell
Customer Base Penetration through Product Expansion – Sell more existing products to existing customers, Expand into new markets with existing products:
Most businesses in their early stages have one or a few offerings and a small market in which they sell their product. This provides a great opportunity to perfect and refine the offering before expansion. A customer base penetration strategy identifies who their consumer is, identifies their needs and wants and delivers. Its more than upselling, its capturing similar buyers who are currently spending money with another brand. A few examples, Winemakers selling glassware and accessories alongside their core product, wine. Because the wine wouldn’t taste as good if you were using anything else. Gyms selling, active wear and supplements because this type of clothing/supplements is designed around a brand that you have already shown a desire for so why not give you more. Make-up companies selling all-inclusive packages that include a kit as well as access to online tutorials. INSTEAD OF SELLING A DISCRETE PRODUCT SELL AN IMAGE.
Customer and Product Diversification– Sell new products to new customers Once you have an established brand, consumers are more likely to try your product over the competition. 63% of consumers say they like it when a known brand introduces a new product and over half say they would purchase a new product from a brand that they have purchased from before. The risk of this growth path is high but so are the rewards. Let’s look at some case studies: Marvel focused on taking an existing asset (Comic Books) and brought it to a new medium (Film). Customers knew their brand; they knew why customers loved their brand and they stayed close to their story telling roots through a different format. And we all know how that has ended up. Think how you can leverage the love and loyalty for your brand into new markets and new products.
Decrease customer churn – Retain more customers Customer churn is when people who buy or sign up to your product leave. Its is way cheaper to retain the customers you have rather than attract new ones. 67% of consumers cite a bad experience for leaving and 11% say this could have been prevented from simple customer outreach. If you don’t think churn is a big deal then let’s take a look at the big guys, companies like Spotify and Netflix are allocating more than double its Advertising budget to preventing customer churn. What can you do about it? Its impossible to reduce churn completely but there are a few things you can do to reduce its impact 1. Create a memorable onboarding experience, make it seamless and get the customer using the product straight away. 2. Offer great value for price and a range of different price points. Its better of a customer downgrades instead of leaving. 3. Invest time in knowing what your customer’s expectations are – Meet and exceed them.
Increase the Value of Stuff you Sell
Increase your prices – Are you consistently selling out of Stock? Are you struggling to find enough hours in the day to get through all the work that is required of you? If the answer is yes, chances are that you’re not charging enough. Economics 101 – control demand by setting the appropriate price. If the answer was no to those questions here are a few tips that will put upwards pressure on your prices. Here’s a link to a great article on when to increase prices and how to increase prices.
The value of a great CX – Inspire additional purchases and advocacy. 86% of consumers are willing to pay more for a better customer experience. Read more on how to produce a great CX in one of my other blogs here.
Optimise the sales process – Streamline the sales process to increase advocacy 64% of consumers will pay more for a simpler sales experience. You can do any of the following to improve the sales experience;
- Reduce the steps required to make a payment. Reduce friction to sale.
- Embrace digital and automated payment methods. Direct Debit, Go Cardless and electronic signatures.
- Reorganise your sales process around the consumers not the product.
- Take advantage of both online and Brick and Mortar shopfronts.
Reduce how much it costs you to make products or provide services
Review manufacturing contracts – Look at volume discounts – If you’re making more units of a product the per unit price should reduce. Talk to your supplier and get clarification on what they can do for you in terms of price if order quantities rise. This should be entered in a forecasting tool and a well-informed decision can be made about order timing and quantity.
Review the P&L – Review your P&L on a quarterly basis, try and identify the discretionary spending then can be eliminated moving forward. Look for opportunities to negotiate a better deal such as rent, power and ongoing subscriptions. Is there outsourcing opportunities or technology advances that make wages expenditure redundant?
What does a combination of the above look like?
A 5% increase in sales volume, a 5% increase in price and a 5% decrease in costs has a monumental effect on profit. Overall yielding 29% increase in overall profit. That’s 29% more in your bank at the end of the day. All from making a few 5% tweaks to the drivers behind your numbers. So, if you’re making a profit of $100k a year this will increase to $129k. That’s a great pay day for taking some time to investigate and analyse your sales process, customer experience product range and current internal operations.
A Discounting strategy will have the inverse effect, beware of discounting!
This kind of analysis is conducted on the regular for clients at Growth IQ. If you would like to forecast what impact a small change in your day to day operations could have please get in touch with us today. We are your partner in business.