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Business owners must navigate a mountain of tasks to sustain their companies. Pricing might be the most important decision to ensure the longevity of the business. If the product is not priced appropriately, you could be headed for long-term losses. But if your goal is to increase revenue, adjusting your pricing is an option. You also could attempt to attract clients, sell more units of your product and/or expand your offerings. But tread carefully. Here is a road map for determining how you can grow your business sustainably.
◗ Add clients or boost units.
Let’s start with this one because growing in quantity is the most familiar concept to us all. If we want to increase revenue, it’s a simple math equation: By increasing the quantity sold by the standard price, revenue will grow. This makes the most sense if you have a solid product that is consistently creating long-term value for the business.
Identify your current market and potential for growth. If you are selling traditional doughnuts in a neighborhood, your growth potential will be generally larger than if you are selling a vegan, gluten-free doughnut. If you are capped by the market where your product or service resides, you will need to get creative to increase the quantity sold. How can you activate a new audience or market to purchase your doughnut? Try increasing marketing and brand recognition to ensure that more people know about your product or service.
◗ Raise prices.
The next option is to increase the current price of the product while maintaining the same customer base. Changing price can be tricky, but evaluating your pricing on an annual basis is a worthy task as you review your total direct and indirect costs to deliver your product. Those direct costs are related to the creation of the product (flour and eggs in our doughnut example), and indirect costs include payroll, rent, internet, marketing, etc. There are factors that might allow you to drive a better margin for your singular product, such as better pricing with a vendor because you have increased your orders. Perhaps you can bundle administrative services together to reduce your overhead. These will increase your overall margin. If you have created more efficiency or value for your product or service, take it to the bottom line. As a more experienced company, you should not be penalized for growing your ability to deliver your product more effectively and efficiently. Periodically, you should evaluate the overall value to deliver the product and align it to the customer’s value placed on the product.
◗ Build your base, expand your reach.
We are heading back to the idea of increasing the quantity sold—but with a twist. If you have identified an entirely new market that doesn’t know about your doughnut, this might be a great opportunity to expand your customer base. Perhaps your core business has been focused on in-person transactions in your local market. But with remote work and other virtual interactions, your in-person service might be able to expand to new geographies that weren’t serviced previously. Maybe a new network relationship is connecting you to new areas in the state or broader. This entirely new customer base might change the size of the pie. The important key here is to maintain your original customer base to ensure the foundation of the business.
◗ Develop a new offering.
The last method for increasing revenue is to develop a new product offering. This can be a complementary service or adjacent product to your already established core offering. These product extensions can strengthen your primary base—or potentially damage what you have built if not done well.
For example, I have a client who operates a home-organizing business that relies on new clients to maintain growth in revenue. We identified a valuable proposition in growing concierge services for people who were packing and moving to new homes. This provided a higher-margin service that also locked in a number of work days. The service extension adds variety in the type of clients who could find the service useful, as well as in the profit margins. Developing a product extension can be a useful tool, because you learn more about the value of your product and the efficiency in how you deliver it to market.
Developing a comprehensive plan for sustainable growth will provide long-term value. You might need to activate only one of these methods to increase revenue, or your plan might require a combination of methods to grow. Remember that each of these methods evolves, and it might take some missteps to make the largest leaps. If you don’t make a step, you will never know what the opportunity is. Take the leap!•
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Martin is founder and CEO of SourceUP, an Indianapolis-based firm that assists small businesses with financial expertise and strategic guidance for growth.
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