This is the third in a series focusing on the big challenges facing small business owners and managers in this anxiety-ridden election year filled with uncertainty about the economy and the future. Previously we focused on when to hire new employees, and whether you should provide employees healthcare benefits. Now, let’s look at one of the biggest and most important questions – one that remains difficult to answer despite it being asked over several centuries: How do you plan to increase your small business’ revenues this year So, how do you plan to grow your company’s revenues in this crazy, angst-ridden and hard-to analyse year?
This question, of course, assumes you are planning to grow your revenues this year. If that’s not the case, it should be. And to start that process, you need a revenue growth plan. To be sure, growing revenue is not automatic, or easy for small businesses, especially if yours has been operating for more than two or three years (It’s easy to double your sales in year-two because first year sales nearly always are weak simply because you’re introducing your company to the market). But even if you have a plan – of sorts – to grow revenue in 2018, chances are your plans are pretty shaky.
Like many presidential mid term election years historically, 2018 is shaping up to be a complex year economically speaking. The business climate isn’t stalling out completely, but it’s far from booming. Uncertainty and anxiety rein. Certain business sectors are experiencing recession-like conditions. Small bricks-and-mortar retail businesses are threatened by internet retailers. And historically professional service providers are particularly vulnerable in years featuring tumult in both the political and economic spheres. But that doesn’t mean your small business cannot increase its revenue this year. Far from it. So let’s look at the basics.
There are only three ways for any business to increase its revenue (apart from buying another company and capturing its revenue, too). Businesses either can sell more product or services, sell their products or services at higher prices, or do some of both.
1) Sell More
Let’s start at how you can plan to sell more of your products and services. What are your sales projections for this year? We’re over a third of the way through the year so if you have a plan, it’s probably a good time to make adjustments to your revenue predictions, up or down. And if you don’t have a revenue projection for the year, it’s not too late to create one. A revenue projection is important for a couple of reasons. One, it gives you a goal to reach. The old saying that “if you have no goal you’ll achieve it” is an old saying for a reason. And two, like a shark, if you’re small business isn’t moving forward – by increasing revenue – it’s dying. Inflation alone steals a percent or two of your revenue’s actual value, so your small business must grow at least as fast as the economy just to stand still. Beyond that, if you’re business isn’t growing, at least a little, you probably aren’t growing either. Becoming satisfied with your company’s performance is a clear signal that you aren’t growing as an individual and that your enterprise isn’t keeping up with whatever your industry is.
So how can you sell more? Are your sales people properly incentivized to bring additional business, either from existing or new customers? Are you offering products or services that are, in some significant way, better than they were last year, or more relevant to your customers’ needs? If not, why not? And how can you enhance your products and services to generate additional sales. This may require adding more production capacity or service providers, but chances are you can probably increase sales without doing either thing and by focusing on increasing selling efficiency and helping your customers realize how buying more of your products or services will improve their sales and bottom lines.
2) Raise Your Prices
Now, let’s shift to the second, typically tougher way to increase revenue – raising your prices. Too often small business people are reluctantly, slow or even apologetic about raising their prices. This should not be the case if you as a small business owner or manager are confident in the value of what you deliver to your customers. But because small businesses typically compete against larger companies on the basis of the combination of price and personalized service, they find it hard to raise prices on their “friends” and are fearful that if they raise their prices their customers will switch to Brand X either for a lower price or big company-levels of customer support.
More often, however, small businesses can raise their prices – often by significant percentages – and continue to be lower-priced than Brand X. That’s why it’s important for you, as a small business owner or manager, to have a very clear understanding of both your product or service’s value and the prices others in your market space are charging. Failure to understand one or both of those factors are the biggest reasons small business owners fail to increase their revenue from one year to the next, or fail to increase their revenue as much as they could have.
3) Do Both
Naturally, both raising your prices and selling more of your products and services require that you have a good handle on your own business’ data. How much does it cost your business to produce and deliver your products on a unit basis? How much does it cost you – all in – to provide the services you sell? How much can producing more product lower your unit costs as the laws of efficiency kick in and you use the same facilities and people to produce more? How much more work can your existing service providers do for the same or additional clients? Beyond that, will you be able to generate enough additional sales to cover (over time, and with depreciation and tax considerations factored in) the cost of adding new facilities and/or staff? Again, having a good handle on your own data is critical to being able to make such forecasts.
If you don’t have such a good handle on your business data, or if you need help working your way through the analysis it’s probably a good idea to seek the advice of an experienced small business advisor. However, if you’re on a very tight budget and want to learn yourself, there are lots of excellent best practice guides out there, from visual guides on laying out spreadsheets to understanding and gaining insights from analytics.