It’s 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.”
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.
They could have worked fewer hours or sold fewer units for the same profit.
Let’s forget about the payback period of an upfront advertising spend, which is a Return on Ads Spend (ROAS) discussion. Also, let’s disregard the collection of payments, which is a debtor management/Cash Flow discussion. At the end of the day, a business’s 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. It’s more than upselling; it’s capturing similar buyers who are currently spending money with another brand.
A few examples:
- Winemakers sell glassware and accessories alongside their core product, wine. The wine wouldn’t taste as good if you were using anything else!
- Gyms sell activewear and supplements because this type of product is designed around a brand that you’ve already shown a desire for—so why not give you more?
- Makeup companies sell 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 bringing it to a new medium (film). Customers knew their brand, and they knew why customers loved it. Marvel stayed close to its storytelling roots through a different format.
We’ve all witnessed the success of the Marvel franchise. 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 occurs when people who buy or sign up for your product leave. It’s much cheaper to retain current customers than attract new ones. 67% of consumers cite a bad experience as their reason for leaving, with 11% admitting this could have been prevented by simple customer outreach.
If you think customer churn isn’t a big deal, take a look at the big guys. Companies like Spotify and Netflix allocate more than double their advertising budget to preventing customer churn.
What can you do about it? It’s impossible to reduce churn completely, but there are a few things you can do to reduce its impact:
- Create a memorable and seamless onboarding experience and get the customer to use the product straight away.
- Offer great value for price and a range of different price points. It’s better if a customer downgrades instead of leaving.
- Invest time in knowing what your customer’s expectations are. Meet and exceed them.
Increase the value of the stuff you sell
Increase your prices.
Are you consistently selling out of stock? Are you struggling to find enough hours in the day to complete all the work you are required to do? 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 is no to those questions, here are a few tips that will put upward pressure on your prices. Learn more about when and how to increase prices.
The value of a great customer experience – 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 customer experience.
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 bricks 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 be reduced. Talk to your supplier and get clarification on what they can do for you in terms of price if order quantities rise. This information should be entered into 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, and try to identify the discretionary spending that can be eliminated moving forward. Look for opportunities to negotiate a better deal, such as rent, power and ongoing subscriptions. Are there outsourcing opportunities or technological advances that make wage 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 have a monumental effect on profit, yielding a 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 payday 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 regularly for our clients at Growth IQ. If you would like to forecast the 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.