Usually, growth strategy problems are open-ended questions such as “A firm XYZ wants to increase their revenue. How should they go about it?” The income generated by sales for any business can be broken into a simple yet powerful ‘Revenue Formula’ : No. of Customers x Transaction Value x No. of Transactions = Total Income
Optimise first, innovate later
Generally, businesses focus on the acquisition of more customers to increase revenue, however, this alone is an incredibly costly and a time consuming exercise.
Rather, if we can ‘optimise’ and ‘maximize’ each customer opportunity (lead), we can more easily increase revenue by focusing on increasing the ‘Transaction Value’ and ‘No. of Transactions’ within the sales formula.
Therefore, before I request my clients to make costly investments to expand their marketing budgets or increase their sales teams with the aim to acquire new customers, I first help my client’s identify ‘low hanging fruits’ that will yield exponential revenue growth at virtually zero expense.
Gather the necessary information
Gather the necessary infrmation about volume and price to determine the best growth lever.
Revenue growth issues can be tackled by influencing two major parameters that determine growth figures. These are volume and unit price. In order to make suggestions, once again, you need to understand the client’s business and the industry. Growth strategies can focus on a product, a division, or on the company as a whole. Areas you could investigate based on your hypothesis are:
Products
- What is the client’s product mix? What is the lifecyle of each product?
- What is the state of the respective industries? Are they growing?
- Which product segments have the biggest potential?
- What drives customer satisfaction?
- How does the client’s sales growth rate compare to that of the competitors in the market?
Price
- How are the client’s prices compared to that of competitors? For instance, if the product is a commodity, then prices should be similar.
- What is the customers’ price sensitivity? If the product is a commodity, then customers are likely to be very price sensitive.
Marketing
- What are the client’s marketing and sales channel activities? Evaluate their effectiveness.
- What are competitors’ marketing and sales channel activities? Evaluate the effectiveness if they are better than the clients’ sales.
Financials
- What are the client’s available funds for growth (you can find it via balance sheet or cashflow statements)?
- What do the shareholders demand/expect?
Choose a growth strategy and the growth vector you want to pursue
After having gathered this set of information, you will have got a feeling for the type of growth that is demanded. Based on this information, you can then decide which growth strategy to implement. Roughly, you can subdivide strategies into (1) organic growth and (2) inorganic growth. The categories can further be organized using an Ansoff matrix.
Find new customers by (Ansoff Matrix):
- Increase/switch distribution channels.
- Expand the product lines.
- Enter new markets.
- Perform a major marketing campaign.
- Increase your share of wallet with your existing customers e.g. by selling them add-on/bundled products.
- Lower customer churn rate by preventing unwanted customer attrition.
- Acquire other companies.
With your best customers identified, and your Decision Making Unit mapped, I focus on increasing my client’s average transaction value.
You could just increase the retail cost of your product or service (this is certainly an option as most businesses do not know how to price their offering correctly in the first place and are selling at an rate that is not reflective of their true value).
However, I have listed some powerful operational, marketing and sales strategies that can also help to increase the ‘Transaction Value’ by making your customers buy more.
- Do you actively Cross-Sell?
Generally, there are means to package other products and services within your portfolio to offer additional value to your customer - Does your business Up-Sell?
Your business can probably sell more of your product and service simply by offering more at a better volume rate (more value for the customer) - Do you offer a variety of Payments Options?
Some customers prefer to pay more now (for example, quarterly payments vs monthly payments) in exchange for preferential discounts