By: Jeffrey Heybruck
Updated April 2022
Ready to hit the next revenue milestone?
Our team of CFOs have compiled a list of strategic methods to increase revenue. For each revenue growth strategy, we’ll help jumpstart the planning process with industry and market considerations.
When evaluating the list of strategies below, it’s important to also consider compatibility with the business’ brand, products, services and target market(s). And whatever plan is chosen, be sure to execute it well and plan for growth carefully.
1. Expand The Market
Adding to the market for products and services may take several different forms:
- extending geography
- adapting to new target markets
- forming strategic alliances for complementary products or services
Each comes with a unique level of risk and revenue impacts (both short and long term). For example, forming strategic alliances does not require considerable upfront investment, nor does it call for the business adapt to offer new services. Penetrating new markets and extending geography, on the other hand, come with a larger upfront investment and a greater time commitment. This naturally means more risk, but with a potentially larger long-term payoff in increased revenues. Let’s take a closer look at each.
Extending geography – Begin with competitive research to understand if competing products and services are being offered in cities outside of the primary sales area. Even if they are being offered, is there pent-up demand? Requests from existing clients to go beyond a geographic area or inquiries from new prospects complaining about the quality or capability of existing solutions in their local market is a good sign there may be pent up demand. Weigh the costs of targeting additional geographies against revenue projections and time to break even.
Keep in mind that some businesses may lend themselves better to this strategy than others. Some, by their very nature, are bound to a certain geography (eg. a snow and ice management and removal company). Brick and mortar retail or restaurants are ripe for extending into new cities but will require preliminary research to confirm the new locations would produce the necessary margins and that there is a qualified workforce in the area. Services businesses (especially those offering virtual services) may be the most well positioned to expand rapidly and reap the benefits of extending geography.
Tip: When the competition gets too tough in one region, shifting geography to a less competitive market can be a good alternative to the time and resource-intensive exercise of adapting the business model to compete. There could be money to be made elsewhere rather than fighting the tide. Lucrum has a land developer client in Charlotte who has pretty much written off the local market. It’s too competitive, prices are too high, so they are replicating their model in the surrounding cities and states.
Adapting to serve new target markets – If a company primarily services consumers, is it reasonable to serve businesses also, or vice versa? For example, landscaping companies, or an HVAC business, may focus on only commercial or only residential, but these companies probably have all of the ‘tools’ in place to serve both.
Adapting to serve new target markets may still require updating the service or product line – in some cases requiring the creation of an entirely new division or product/service – to best serve the new market. For example, a landscaping company may choose to offer a new service like plant healthcare and begin aggressively targeting commercial properties with large numbers of indoor and outdoor plants needing care. By using existing, underutilized assets and staff, this company has the potential to see extraordinary returns from this new revenue stream.
Forming strategic alliances – Strategic alliances are a good option when a non-competing business can sell your complimentary products and services alongside their own. Think of a spa selling a local candle company’s product. Joining together extends both companies’ reach.
In the most successful partnerships, the products or services are truly complimentary, delivering more value to the customer when combined. In a true joint venture, both sides may also put up property (cash, IP, services) to pool resources for success.
In any partnership, the business will lose some control over experience management by letting another organization represent its brand. Thus, a good culture fit and trust are extremely important for the partnership to work. Ongoing training of and relationship building with the complimentary sales team will be essential.
Partnerships may fail when formed only because the businesses share a common target audience or market and begin referring customers to each other. Partnerships may also fall flat if the complimentary business’ sales team is not motivated to sell. Lack of training is another death-sentence; the sales team must understand all the products they are responsible for. This lack of motivation or knowledge can happen when the sales team does not fully understand the value of your product or service to its customers and/or is not properly motivated to sell via the right commission and revenue sharing structure.
Tip: Strategic alliances and extending geography are unique growth strategies, but they can be especially powerful when combined. We’ve seen businesses quickly extend into new cities when using a local partner model.
2. Add A VIP Revenue Stream
A VIP revenue stream provides additional benefits to clients who want special treatment or more convenient access. Some customers are willing to pay a premium for the benefits, and such a revenue strategy brings benefit without a lot of additional expense. Not all businesses will lend themselves to this model – the key indicator being whether there is unfulfilled demand for extraordinary service and an overall richer customer experience. A successful VIP revenue model may take trial and error, so be prepared to reevaluate the pricing or VIP model if there is initial lack of interest.
VIP offerings can include:
- Increased access to the business owner
- Special service, perhaps via another phone line or checkout lane
- Invitation to exclusive events, sales or previews
- Free shipping
- Special gifts
Some customers are willing to pay a premium for the benefits, and such a revenue strategy brings benefit without a lot of additional expense.
Here are some examples of how these types of offerings can be used to create a VIP revenue stream:
- A doctor’s office creates an annual fee for a select number of patients who want benefits such as personal care, priority appointments, cell phone access. Those who don’t want or need extra attention still get medical service, but perhaps from a physician’s assistant or nurse practitioner. Charging $2,000/year for 250 patients would net an additional $500,000/year without dealing with insurance companies.
- A consultant has a couple of clients that want to have access to her 24/7. She sets up a special retainer of $1,500 per month for these clients and provides her cell number. Since they are busy CEOs, they only call a few times a year, but when they do, she drops everything to be of service. With four clients on retainer, it’s an extra $72K per year for a few days of work.
- Even Ferrari (you know, the Italian car company) does this. Customers buying a new Ferrari get all kinds of extras with their purchase that are ONLY available from the dealers and as part of buying a new model. The more expensive the car the nicer the swag that comes with it.
3. Review / Adjust Pricing Strategy
Markets are always changing. Compare competitors’ prices and offerings to see if it is necessary to lower or raise rates. Another option is to consider bundling an offer to sell more products together and increase the average order or deal amount. Pricing incentives and specials may also drive sales in a strategically chosen direction.
Tip: Account for inflation in revenue projections to ensure the numbers are telling the real story. In a scenario where costs are going up 7% year over year, a 10% increase in revenue may not result in any additional margin. When prices are relatively flat, 10% increases might be a healthy metric. When inflationary scenarios are prolonged, track and compare the amount of products or services delivered rather than focusing on top line dollars.
Before lowering prices, run the numbers to determine the anticipated effect on sales and profitability. Remember, the goal is to increase sales and increase revenue, not reduce profit. Only consider this strategy outside of an inflationary economy. Otherwise, it may not be possible to increase sales volumes to the level needed to offset the decrease in profitability.
Account for inflation in revenue projections to ensure the numbers are telling the real story
In an inflationary economy, look for ways to maintain the customer experience in light of rising prices. For example, some retail manufacturers may opt to decrease the product size (e.g., sell a 10 oz. vs. 12 oz. product). This approach lessens the negative impact to the customer experience (vs. simply raising the price), but still accounts for inflation.
The state of the economy (rather than your specific model or business) may also be the key determinant of whether pricing is the best option to drive more revenue. Differentiating your business on pricing may not make sense when supply chain disruptions make availability the key customer need and differentiator. As I’m writing this article, the priority has become less on price and more on availability. Greg Crabtree of Simple Numbers fame said the ranking used to be “How much, when can I get it, do you have it?” since everyone had plenty of “stuff” and price was the differentiator. Currently, it’s “Do you have it, when can I get it, and oh, by the way, what’s the cost? Price is a distant third, dropping from first criteria to third in just a year or so
4. Increase Deal Close Rate
It’s worth saying that identifying cost-effective paths of least resistance are the most attractive ways to increase revenue. Simply increasing the close rate of opportunities in the sales pipeline could yield an increase in revenue.
Start by evaluating the prior year opportunities. Are there common threads or trends surrounding lost deals? Are there common objections from customers that could be overcome by simply providing better information? Asking these questions will help identify low-hanging opportunity to improve the sales process. Then do the following to overcome these challenges.
Keep Sales Materials Up To Date – A company’s website and collateral must be current to support the sales teams’ efforts. Collateral that makes it easy to decide facilitates sales by positioning the company as meeting customer needs. Consult with salespeople and selected customers to get feedback about what’s working, what’s not working, and what is missing that needs to be included. If it’s not possible to update everything at once, determine which of the marketing materials will provide the greatest return on the investment.
Hold Periodic Sales Trainings – It’s not uncommon for a select few individuals inside of an organization to hold a disproportionate amount of product or service knowledge. Holding periodic sales trainings in which these individuals pass this knowledge to others can increase the team’s confidence and thus, improve close rates. This can also be a time for high performers to share what has worked well for them to lower performers, empowering them with better information and strategy to close their next deal.
Tip: Don’t forget to include the sales teams of any strategic partners on these trainings or hold a separate training for partners.
Improve Internal Information Sharing – Is the sales team aware of all of the materials and slicks available to them, and are they organized so that they are easy to access and find? Improving information sharing within the organization regarding benefits, custom solutions, success stories and reviews are great way to support your sales team. An internal resource center where Sales can sort by product, service or industry can give your business a strategic advantage in closing new opportunities.
Streamline Quotes & Contracts Processes – The simplicity of generating a new quote or service agreement, the professionalism of those documents and the ease with which the customer can sign (think e-signature vs. wet signature & scan, or God-forbid, mail!) can impact close rates. Perhaps it’s discovered that a large number of quotes are being given but that customers are not signing on the dotted line. Having a consistent format and ability to get the customer to sign the quote (perhaps even make a deposit, depending on the industry) are key. Once the customer logs in to look at that quote, they also have a high expectation of the professionalism of those documents if they are to sign confidently. Think of an HVAC company or tree services business. Many of these companies are equipping their sales teams with mobile devices so that they can take pictures and add those into the quote while on site, increasing the professionalism of the quote and the accuracy of the work being done when the job is in process.
Tip: While working to close new customers, make sure not to neglect existing ones. If customer retention is low, it directly counteracts against growth goals. In the same way that increasing close rate works to increase revenue by simply changing the success rate metrics, implementing programs to increase customer retention can do the same.
We hope that these tips have been helpful. Remember, the most successful companies keep a constant watch on business dynamics. Be ready to shift as necessary to keep growing and moving forward.
It’s always a good idea to get a strategic financial resource to help validate your business growth ideas. Lucrum is here to help. Request a consultation with one of our CFOs to help answer any questions and plan your next steps; so you can lead with confidence.