Spot Ways to Grow Profits

Revenue Growth Timing

revenue-growth-timing clockAs you decide which lever to use to grow your business, you’ll be thinking about what could go wrong as well as dreaming about success. One issue is revenue growth timing. You do want some noticeable gains soon. Others are effort and risk. You don’t want a major effort for a minor or temporary gain. You don’t want a major risk if smaller steps can deliver the same value. Let’s consider first the idea of revenue growth timing. How long will it take to grow revenue?

Revenue Growth Timing

The previous article imagined a “business growth machine” operated by the great and powerful small business owner. See Business Growth Machine. The machine’s manual described each lever for business growth, but it also offered this caution about the speed of results from various levers:

Quartile

Speed   of Cash Impact

Lever   or Technique

1st

Quick Wins:0 to 1 month Raise price, cut cost, decide not to spend investment

2nd

Pretty fast:1 to 3 months Stimulate repeat purchases; motivate higher amount per buy

3rd

Serious effort:3 to 12 months New customers; new distribution channels

4th

Long slog:1 to 3 years New product; new market

“Quick Wins”: You Have Control

Why do Quick Win levers raise your profits almost right away? For quick wins, implementation does not depend on others, and results are fairly predictable, especially if the moves are small.

If you look behind these quick win levers, inside your growth machine, you’ll see simple and direct connections between the decision lever and the output gizmo. The owner decides, and it is done. Nothing is simpler than refusing to spend cash. You don’t need an owner’s manual for that! And raising a price has some risk, but it’s easy to do.

You can sum it up with the word “Control.” The owner controls implementation, and the outcome is under control as well. Also, if you have control, you can more easily “change the change” if you don’t like the results.

In the above table, the owner’s control of implementation and the predictability of results both decline in the lower categories. Maybe that’s why they take longer to show results. But there are other reasons too.

“Pretty Fast”: Complexity and Skill Requirements = Slower and Less Certain Results

When the owner cannot make it happen by declaring or giving orders, the lever involves some complexity.revenue-growth-timing clock There are gizmos behind the lever to cause other gizmos to operate, so the outcome is more indirect. Anything indirect is harder to manage: harder to implement; harder to predict; harder to program. This means successful implementation takes more skill, and it also seems to take more time.

For example, consider the second row in the table: the “pretty fast” levers. To stimulate repeat purchases, the owner/machine creates a loyalty club and promotes it to customers in the customer database. This is more complex than raising price, because you or the machine must

  • Make sure you have a customer database, so you know who to contact and how.
  • Create the loyalty club rules to fit the target customers.
  • Create a communications message and use media to pass the word.
  • Then customers must pay attention to the message, find it compelling, and return to buy more.

Even if you already have an adequate customer database (see Customer Data Base To Grow Revenue and Customer Data Base Reports), three months can easily elapse before you see more revenue. The same kind of multi-step complexity affects your plans to get buyers to buy more in each purchase.

Complexity requires more time. The other variable is skill. The results you seek only happen if you have the skill to do each of these steps well. To the extent your efforts fall short of the optimum, your results will fall short as well. Unlike the quick wins, it’s harder to predict the revenue effect and the revenue growth timing of these “pretty fast” techniques or levers. The reason is that they are harder to implement. As more complexity and skill are needed, control of results is less certain.

“Serious Effort”: More Variables and Limited Knowledge = Even More Delay and Uncertainty

The “serious effort” levers take longer, as much as 3 to 12 months, because you need to learn about new types of people and negotiate with them. You need to understand why prospects are not already customers. You have to learn which distributors are available, what kind of supplier they want to work with, and become that kind of company (see Finding Distributors). In both cases, you must then find new ways to get their attention, express your benefits, and make a deal.revenue-growth-timing manage risk

The risk of failure rises when you move away from prices/costs you control and customers you know. You may do all that seems necessary and do it well (complexity and skills), but you may be doing the wrong things if you don’t know what motivates new customers or new distributors. Hopefully the designer of your business growth machine (that would be you!) links the levers to the right gizmos, but if not, garbage in = garbage out.

“Long Slog”: New Products and New Markets Have the Most Unknowns

The riskiest and most uncertain lever, which also has a red handle, is a new product introduced to a new market. This is close to launching a new business, and the norm for a new business to reach cash breakeven is some time in the second year.

However, you can reduce risk and increase control by cutting the variables in half. A new product for current customers has lower risk because you already know their needs and how to reach them, and they already listen to you. This leaves only the product development risk.

A new market for an existing product has less risk because the product is known. Your challenge is only to understand how to reach and be heard by the new market. The unknowns/risks become even smaller if it is a new geographic area for the same type of customer you are already serving elsewhere.

Still, the learning and the many steps and skills involved with these techniques suggest extended revenue growth timing. You probably won’t see gains in profits for one to three years. It may feel like a “long slog.” The projected profit gains may be large, but so is the uncertainty.

In sum, you will experience increases in time required, uncertainty of results, and risk of failure as you move along this chain:

Operations you control

Current customers/current products

New customers/old channels/current products

New customers/new channels/current products

Old customers/new products

New customers/old products

New customers/new products

Which revenue growth levers will you pull first?

 

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About the Author

About the Author:

“Profit Spotter” Tom Gray helps business owners spot and capture opportunities to grow profits, and guides those considering a sale. He is a management consultant certified as a Turnaround Professional (CTP), Business Development Advisor, and SCORE Mentor. Reach Tom at 630-267-7193 or tgray@tom-gray.com See www.tom-gray.com. For Tom’s two books and ten booklets, see www.businesstechniquesbooks.com.

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