Your business revenue has stagnated, or worse it has reduced. Now what do you do? How do you increase revenue and make sure you are also doing this profitably? This is a common situation facing business owners right now. In fact, it's a key issue business owners everywhere constantly need to address. Right now, for many businesses it has become critical.
But what is Revenue? Revenue = Number of Customers x Number of Transactions x Value of Each Sale
You can increase revenue by increasing the size of any of those three inputs. So, we can have a strategy to increase the number of customers, a strategy for increasing the number of transactions with each customer, and a strategy for increasing the dollar value of each sales transaction.
Any plan or journey starts with two things. Knowing where you want to go to and knowing exactly where you are starting from. So firstly we need to set a desired revenue goal. Subtract from your revenue goal, the amount of your current revenue to identify how much additional revenue is required.
When we know the level of additional revenue we need to create, we can be more specific about the revenue targets we have for our number of customers, the number of transactions with each customer and the value of each sale.
In developing our strategy for increasing revenue it is important to understand which are your most profitable customers and implement a strategy to retain them. It is possible that too much focus on smaller, unprofitable customers is causing a lack of focus on those who should be better nurtured. Get rid of the unprofitable customers.
The first step is to implement a system to measure lead generation, conversion rates, sales volume and customer profit. If you measure it, you can manage it. Use this data as a tool to help you:
- Increase the number of the right type of customers for your business
- Create recurring revenue customers who purchase repeatedly from you
- Price your product for profit
Many businesses bundle in everything but the kitchen sink. When you look at your product or service offerings, are there are certain components that could be unbundled and sold separately? An example of unbundling might be to separate service contracts out from product purchases.
Are you providing "too much" value? Many service businesses are guilty of providing too much value. They add in extra pieces of value without identifying or asking if it is something the customer or client actually wants or needs. There is a cost of adding these extra pieces of value. If the customer doesn't need them, don't give them away. If they do want them, price them appropriately and sell them as a separate item.
It has often been said that customers do not know what they need until they see it. It's important that you make a habit of asking customers what else they might need as you will likely get some useful feedback around product extensions or services that could be added.
Review pricing by product or service line. Is your pricing competitive and profitable? Do you need to increase prices?
Identify price sensitivity - based on your gross profit margin, what percentage of average customers could you afford to lose before you are worse off. In other words, based on an average price increase of say, 10%, how many customers could you lose and keep revenue at the same level?
In a conversation advising you to increase revenue it may seem counter-productive to mention that losing customers may not be a bad thing. So, let's take a closer look.
If you are able to increase the price charged to a non-profitable customer, one of two outcomes may result:
- By correctly identifying the increased price required, you could turn a non-profitable customer to a profitable customer; or
- You may lose the customer which means that you're a not making a loss on the transaction, and, you now have the capacity to sell more to profitable customers, and you free up time for working on your business.
Always look for opportunities to upsell or cross-sell additional products or services. If there are natural add-ons that could be offered when a customer buys a product or service, consider how effectively your sales team is suggesting that add-on to the client. The classic example is McDonald's famous line, 'would you like fries with that?' Because they systematized it using a script, they could get 15-year old's to upsell.
Find opportunities to upsell or cross-sell complementary products and create scripts that customer-facing team members can use to increase average transaction value. Every action you take to make it easier for a customer to buy from helps to increase your revenue.
At this point you may be feeling overwhelmed and not know where to begin. As a business owner you wear many hats and have to perform in a variety of business roles which you may lack the skill or experience to do well. This disadvantage for small and medium business owners can be overcome by using the experience of others. Experience of people suitably qualified and knowledgeable who can advise you specifically on the right course of action for your particular business.
Getting help all starts with a conversation. Talk to us today to find out how your business can benefit.