Business Growth: Seven rules for growing revenue and margin

If you want to grow a company, you need to learn the rules and, how to apply them. And then execute.

In Malcolm Gladwell’s book “Outliers, the Story of Success”, he says it takes 10,000 hours –- or roughly five years – of deliberate focus to master a particular skill.

Here are seven rules for growing revenue and margin that you can apply immediately and should be able to master in less than five years.

1: Determine your position in the market
 

Know what’s special about your company. Be brutally honest when assessing your “special sauce” because clarity around who you are and what are your mission, values, and vision form the foundation on which your company’s growth is built.

Understanding the three Cs is crucial - what’s your company’s Competitive advantage, what do Customers want and who are your Competitors?

Look at how big your market is and ask yourself whether it’s big enough for your growth ambitions. If there are only a few customers, beware. If they are mostly large customers, be prepared for fierce competition from competitors.

Look for markets with lots of potential customers – or change your products and services to appeal to a bigger audience. If the market is huge, don’t try and “boil the ocean” – focus on segments of the market.

2: Rationalise your pricing

Figure out your value proposition and have the courage to charge what customers are willing to pay.

If you offer something customers value, some are willing to pay more than competitors are charging. People are paying three to five times more for a Tesla than a Ford Fiesta because they value more than just “a personal vehicle for transportation”.

3: Sell more to current customers

Figure out how to sell more to your current customers or others with the same characteristics, then:

• Adjust your pricing to encourage them to buy more. For example, “50 per cent off the second shirt.” or “Sign up to our Wine Club and get four bottles each quarter.”
• Provide sales training to your staff
• Increase the size of the customer’s basket by reviewing the layout of the store and placing “impulse buy products” near check-out
• Get customers to bring along friends and encourage postings of their shopping experience to social media
• Improve your online catalogue and your customers’ online experience
• Partner with others to share leads

Some ways to maintain or increase margins while selling more include:

• Make adjustments to your supply chain and when/how much you purchase
• Negotiate better prices when buying large quantities
• Give employee awards to those who identify efficiencies
• Do a more efficient lay-out of “pick and pack” in your warehouses
• Do more automation of your assembly line
• Sell more online
• Measure and use data to track the cost of manufacturing, shipping and sales
• Track and understand the reason for budget discrepancies

4:  Deploy new products and services to customers
 

Once you understand who your customers are and what their buying patterns are, you can begin to sell them new products or services they might want. Maintaining your margin when bringing new products or services to market requires the efficient development and successful deployment of those new offering.

ANZ customer and Business Growth Program participant,Gewurzhaus, sells spices but has expanded to tea towels, aprons, dish clothes – other things cooks would be interested in.  Last year, when they offered a Spice Advent Calendar it sold out in four days. Clearly, they understood what their customers wanted – they just underestimated the number of customers who wanted it!

It makes no sense to offer a new product if the price doesn’t cover costs. And it makes perfect sense to increase the price of something customers snapped up in four hours!  Underestimating costs, supply or demand will impact margins. Carefully scope the product, avoid scope creep, estimate and demand. Then, price accordingly, manage the supply chain and nail down shipping agreements.

5: Enter new markets with forethought

You should be able to increase revenue and margin in a reasonably short period of time by either selling more or selling new products and services to current customers.

Introducing current products in new markets and new products in new markets are longer term plays and they involve more risk. You also need to be prepared to invest, sometimes for several years, before you begin to see increases in revenue or margins.

Why? Because new markets are markets you do not understand! You can’t be sure your prospective customers’ buying patterns will match those of the customers you currently serve.  If you think simply ordering smaller sizes of men’s clothing will enable you to expand your market to teenage boys, you’ll be wrong.

Moving into a new market – whether through expansion, partnerships, or buying a company – is likely to be a drag on revenue and on margins for longer than you think. Don’t underestimate the additional costs.

6: New products in new markets are high risk but high reward

Taking a brand new product to a new market needs to be a strategic decision the CEO, board, and management support. It needs to be a long-term play, an investment in the future that is unlikely to contribute to revenue or margin for several years.

Disruptive innovations require bold investments but most fail and are sunk costs.  Research suggests only 1 in 11 new ideas is actually successful. Clayton Christiansen of Harvard Business School found that 95 per cent of all innovations fail. Introducing new products into new markets requires deep pockets to cover costs of “business as usual” while new disruptive innovations are being developed and introduced.

Nespresso, founded as a unit of Nestle in 1986, has redefined the way coffee lovers around the world enjoy their espresso coffee in their kitchens. It was on the brink in 1988, but Nestle backed a new leader who had a vision for Nespresso. Now with current revenue of $US4billion and gross margins of 85 per cent it is one of the most profitable units in Nestle. It’s no surprise that as soon as a company figures out the right market for the new product and begins to get traction, the name of the game is market penetration – and we begin the cycle again!

7: Applying the rules of the game

Now you’ve learned what to do, apply that knowledge and execute. Analyse whether you can increase the price of some of your products or services with some segments of your customers, and, if so do it.

Ask you sales team to come up with a plan to sell more to your current customers or people with similar buying patterns, then incentivise them to do it. Ask your customer service team what customers are saying your company needs to do better. Ask customers directly what additional things they’d like you to provide or sell.

Choose the best ideas, size the markets, begin designing the product or service with your customers, then figure out how to start selling as soon as feasible.  Be prepared to provide more resources than you expected.  It’s a long-term play, and the odds are low, but for the lucky few like Nespresso, who make it, their revenues will skyrocket.

To become more profitable, your production function and your operations need to be efficient.  Look for ways to reduce the time and cost of the tactical delivery of new products and services and do it.  Capitalise on what makes you different. And if your growth strategy includes developing, acquiring, and selling new products and services into new markets, learn about partnering, mergers, company sales, and acquisitions.

These are the basic rules for increasing revenues and margin. Apply them, practice, execute – and grow.