A business owner laments that he has experienced significant revenue growth, but paltry profit growth. Unfortunately this is an all too common experience for business owners/CEOs alike. The question is “How do you avoid this dark side of growth?”
Before we tackle that question, quickly, what’s the first thought that comes to mind when you think of revenue growth?
Based on my 23 years experience working with business owners/CEOs 999 out of 1,000 would say “Adding new customers.” While the response is accurate it overlooks two key elements to revenue growth:
- Customer profiles
We’ve been programmed to think that we have to increase the size of our customer base to increase revenues. Not true. Price increases grow revenues without the cost of acquiring new customers, yet it’s seldom considered by business owners/CEOs.
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More importantly the additional revenues (and profits) price increases generate allow you to find new and exciting ways to serve your customers which not only makes your job more fun, it lays the foundation for even more price increases with its attendant revenue/profit growth. Does life get any better than that?
The second element that often gets overlooked when we think of revenue growth is the customer profile. If you, like most business leaders, thought that adding new customers was the answer to revenue growth, odds are that you came to that conclusion without having a clear picture of who that customer is.
Indeed, the leading reason why profit growth isn’t commensurate with revenue growth is that we take on any business we can get to hit our revenue target. It’s only after we complete the sale and evaluate the profitability of the transaction that disappointment sets in.
Even then we seldom question why that deal wasn’t more profitable which causes us to repeat the same mistake over and over again. Before embarking a strategy to add new customers take the time to identify:
- Your most profitable customers
- What it is they value
- How much they value it
Then, and only then, embark on a marketing campaign to attract more of those buyers.
Don’t fall victim to the dark side of growth, use price increases and clear customer profiles to help you grow your profits and revenues simultaneously.