The Only 3 Ways to Grow Your Business
As marketers and business managers we are often consumed with the endless variety of advertising and marketing options available to us. With almost infinite choices ranging from traditional methods to digital and limitless channels and strategies, we can easily lose sight of the fact that there are only three ways to grow any business and its related revenues.
This distinction is especially important at a time during which businesses face additional challenges as a result of Covid-19, phases re-openings and a consumer that in many cases is anxious with the idea re-engaging in past activities. With many companies still facing state-imposed limitations on capacity or level of operation, focusing on various aspects of the following within your advertising and marketing approach can make an enormous difference in your business’s sales and overall profitability with just a few basic adjustments. Even with so many challenges, applying the following can help your business turn the corner to profitability faster or if you’re lucky enough to already be thriving, take your business to an entirely new level of success.
So, what are the 3 ways to grow your business?
- Acquire New Customers
- Increase Your Average Transaction Value
- Increase Your Customer’s Frequency of Purchase
Yes, incredibly simple, but no less powerful if properly leveraged.
1. Acquiring New Customers
This is the most obvious and the most focused upon by business owners, managers and the marketers they charge with execution. Unfortunately, it’s also the most challenging and expensive aspect of revenue growth. Regardless of the difficulty and expense, bringing on new customers is the lifeblood of any business since with growth and expansion comes more options for the business to make its desired impact. The pursuit of new business is also vital since even with the best products or service standards most businesses experience significant attrition and turnover of their clients due to everything from local consumers moving out of the market to competitive influences.
So even with the higher costs of acquiring new business, marketers must continue to allocate appropriate budgets to this undertaking on an ongoing basis. However, to improve the ROI of this initial investment an increased focus on the remaining two areas of concentration will make things payoff at a significantly higher level.
2. Increase Your Average Transaction Value
Many of the largest retailers and service providers have become fanatically focused on this aspect of business growth and profitability. They understand that once their advertising and marketing dollars have been spent to earn the first opportunity with a new customer, their ability to influence the level of purchase within this and future transactions can have an astounding impact on the business.
So how is this accomplished?
Typically, this is part marketing and part operations to gain the full advantage. Within the marketing approach we can use strategies like “stepped offers” (10% OFF $100 / 15% OFF $200 / 20% OFF $300) to entice the customer to stretch to that next level of purchase for an added incentive. Another common offer used effectively by online merchants is a dollar value to qualify for FREE SHIPPING. Knowing what your customer’s average transaction value is beforehand allows you to create coupon offers or other opportunities that influence purchases towards a higher transaction value.
From an operations standpoint, it depends on how your business interacts with the customer. If you’re a restaurant, having the servers provide the dessert menu and simply ask, “What looks good?” (Open ended question – NOT Yes/No), can influence a check for dinner by over 20%. “Oh, I’m too full.”, can be answered with, “I’m glad you enjoyed everything so much, if something caught your eye, I can have it wrapped up for you to take home and enjoy it later?” If your business is represented by a sales team or those in a service or support capacity, anything you can do to influence the level of sale at the time of purchase should be a primary goal for your business. Remember, studies have shown that consumers are always more likely to make additional purchases while they’re in the “shopping/buying” mode. So, help them fulfill their desires and increase your transaction value at the same time.
3. Increase Your Customer’s Frequency of Purchase
The final piece of the puzzle is getting your customers to come back and visit or purchase more often. This can be a combination of buying the same types of products more frequently or providing a variety of products and services that might have different appeals at different times.
Again, knowing a little about your customer’s existing habits will provide the starting point to establish your goals for bringing them back more often.
Depending on your business, your customers may buy with a high level of frequency or their buying cycles could be years in the case of major purchases like real estate or cars. Your marketing approach can play a key role in influencing these cycles. In the automotive industry, we’ve all experienced receiving a typical sales letter suggesting that “during this limited sales event, your current vehicle has never been worth more and you can upgrade to the latest and greatest now with no money out of your pocket.” These offers are usually based on specific information the dealer knows about the age of your vehicle, the finance term and the likelihood that you’re in a positive equity position and would seriously consider upgrading. Today’s vehicles can easily run for 10+ years but dealers are still successful in convincing their customers to upgrade every 3 or 4 with the right incentives and attractive new features.
In retail, restaurants or service business of all types, coupon offers presented to your existing customers at the right time can induce them to return to your business more frequently than planned. A direct mail campaign with a “Special Limited Time Offer” and appropriate coupons or discounts can bring your existing customers back into purchase again faster than anticipated. Restaurants, retailers or even personal services can present a special offer coupon at time of purchase for “10% OFF Your Next Purchase” with a relatively short expiration date motivating the customer to contemplate a quick return.
The MAGIC of compounding!
Now comes the really exciting part! Business growth is hard, and in challenged times it can seem even more daunting. But here’s the good news. Even modest changes to each of these key areas will enjoy the compound effect and result in almost magical results.
As an example, let’s say a company has 200 customers with an average transaction value of $1,000 and each customer purchases twice per year. So, using this basic example the company generates $400,000 in revenue (200 * 1,000 * 2).
- If only one of the 3 areas above were increased by 10%?
Sales would increase by 10% to $440,000 (220 * 1,000 *2)
- What would happen if two of these areas increased by 10% each?
Sales would increase by 21% to $484,000 (220 * 1,100 * 2)
- What would happen if all three variables increase by 10% each?
Sales would increase by 33% to $532,400 (220 * 1,100 * 2.2).
A 33% increase in revenue by simply placing a small amount of focus on each of the three key areas! Plus, businesses that focus relentlessly on this approach discover that the incremental sales drives profitability up dramatically at the same time.
By working with our clients to integrate marketing approaches and offer strategies that address each of these critical areas, we can take average results and turn them into the level of returns your business needs to achieve its goals.