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What Do High Growth Businesses Do Differently?

Over the past 5 years the importance of the “High Growth Business” and how this relatively small group of businesses disproportionally impa...

Thursday 15 July 2010

Taking Your Business to the Gym: The 4 ways to Grow Your Business

There are only four ways to increase a company's revenues. They are:
  1. Acquire another company
  2. Find new customers to buy from you
  3. Get existing clients to spend more at each visit
  4. Get existing customers to visit more frequently and spend money
Option 1 is really only relevant in specialised circumstances, and most businesses with not acquire another at all during their lifetime. So businesses should concentrate on the other three. This option anyway is the most risky given that statistics suggest only 33% of acquisitions are successful.
Which of the remaining options you chose depends on who your customers are and what your business sells. For example many businesses offer products or services with a very low percentage of repeat purchases so Option 2 becomes critical to their survival. These kinds of businesses can only support growth by new business development. That is getting more new customers. This is the most difficult to achieve. It is generally accepted that it takes 7 -10 times as much effort to get a new customer to buy from you than to get an existing customer to buy more. Unsurprisingly this type of business is generally much more sales focused and tends to fair less well in recessionary times as conversion rates fall.
Get your customers to purchase more at each visit. This is very common strategy in a B2C environment and works best where the business has a range of products for purchase. Supermarkets are great exponents of this where they offer a discount for multiple purchases. This is very often for the same product but can often be used to cross sell related or complimentary products. These products are carefully analysed to connect products with high margins. If you can't do that; try offering more goods and/or services for the same price rather than giving away a discount. This is a common on big ticket items where for the purchase of a particular product you get another free. This strategy is based on the premise that the perceived value (sales price) of the free item is significantly more than its cost. For example mobile phone accessories which are purchased by the retailer at a very small fraction of their retail sales price.
Option 4 is about getting repeat sales more frequently; this may be achieved by visiting customers more frequently. An example of this is home delivery freezer food company Eismann. In our area they used to visit us every 4 weeks suddenly it was every 3 weeks. We tended to buy a little bit less on each 3 week visit but over the year we spent significantly more. In the UK you'll also have noticed the increased use of time limited discount vouchers by the big supermarkets; these are all designed to increase the frequency of your visit. B2B businesses use CRM data to manage the frequency with which they contact customers or prospects, as well as buying habits. If you haven't got one, even a very simple one, its going to make increasing revenues a lot harder and in these difficult times you need all the help you can get. So spend a little time understanding which of these options are best for your business and start implementing you approach now.

Exigent Consulting specialises in providing Business Turnaround, Sales, Marketing and Mentoring to the Small and Medium Business. We help Business Owners improve the profit performance of their business.

Sunday 4 July 2010

Manage For Growth or Profit Not Both

There’s a simple rule which says that you can either manage your business to maximise profits or you can price for growth. You can’t do both. This simple rule is misunderstood by many business owners, because they fail the relationship between bottom line growth (profit) and top line growth (sales).
Managing your business for growth means actively planning to grow your business, to do this you’ll need to get your resources; people, product and organisation ready to support sales growth, but each of those three areas have a different time lag between the decision being made and the results implemented. Let’s look at a simple case of recruiting a member of staff. Let’s assume that he’s paid monthly, that generally means a month’s notice before he can start. We also expect that the selection process takes a month. So we need to start the process a minimum of 2 months before we think we need them. If that person also needs training or familiarisation then we need to add that time on so let’s also assume it takes 1 month to bring them up to speed. Our decision point is now 3-4 months ahead.
This time lag also increases the risk, as we have to be confident that our sales will be at a level where we need this person or at least close to it. When driving for growth these decisions like this are taking place right across the business. This typically results in resources being pulled in ahead of time so that they are in place to support growth, which in turn increases costs and so reduces profit. Supporting high growth requires a detailed understanding of the mechanics of your business and the marketplace in which it operates. This detailed knowledge needs to translate itself into a comprehensive financial forecasting model on which to assess the performance of the business as a whole and its individual components. It also requires a degree of risk taking that many owners don’t want to take for fear of getting it wrong.
Pricing for profit is taking the view that we maximise the performance of each component of the business before adding further investment, whilst this has the advantage of having the business run efficiently it puts a cap on growth because resources are only acquired after its it certain that they are needed rather than in anticipation of their need. We therefore assume that pricing for profit is better since were making, or at least should be, profits at all levels of turnover.
In real life things aren’t so simple. Profit and growth are two ends of a see saw, businesses need to decide for themselves where the balance point falls as the trade off between them will be a function of many things including management strength, funds available for investment, market characteristics, risk aversion of owners/directors.
The truth is that pricing for profit tends to be adopted after the business has gone through its growth phase, although many businesses suffer low growth not because they’re pricing for profit but because they’ve hit the limit of their management capability, which of course is another story completely....