Sales and Marketing
How to Increase Sales Revenue
A healthy business will show good returns to its shareholders, whether these shareholders are just a few business owner/operators or the many public investors of a larger enterprise. In both cases, the main job of the enterprise is to generate acceptable financial returns for those people who have invested money in it. This will cause the shareholders to continue to invest in the business (or let their investment remain in place and not “cash it out”) and this in turn helps to maintain employment opportunities for the employees of the business and continued service for customers. Of course, when profits decline, it is likely that dividends and the share price will also decline and the business may need to reduce its number of managers and employees. So managers and other employees have it in their own interest to ensure that the enterprise is always seeking to keep revenues flowing in order to be profitable.
The basic profit formula for determining profit is:
Revenue – Expenses = Profit
Therefore anything which impacts on revenue or expense will have an impact on the profit. The various ways in which profit may be affected can be thought of as profit levers impacting on the results. By pulling the right levers we can increase profit or control losses.
In any commercial business, “nothing happens until you make a sale”. In other words, if you don’t make a sale you don’t have a business. The ultimate profit made by a business is heavily reliant on the revenue generated. You can cut costs all you like but if you do not make enough revenue in the first place, you still won’t make a profit.
Increasing revenue is perhaps the least painful way to increase profit (as cost cutting is always painful). In many cases the additional revenue earned will be made at a lower cost because the business infrastructure has already been provided and is largely paid for. However, there are always constraints on increasing revenue. The size of the market, the activities of competitors, the additional cost of making the sales, can all limit the capacity for increased revenue.
By examining our current situation, looking at the strategies available and making changes to the way in which we manage our revenue generation, we can effectively work towards maximizing profits. In simple terms, we can increase revenue by:
- By selling more
- By selling at a higher price (and adding value to the customer to limit defections)
- By changing the sales mix (selling more higher price or margin products and services)
Four strategies to increase sales revenue
In seeking to increase revenue it is essential to be completely familiar with the market for your products or services and to be aware of the inter-relationship of your own products and services and those of your competitors. In essence this means deploying the following strategies in some form:
1. Expand your customer base:
To drive up revenues, a business needs to increase the number of consumers for its products or services (ideally at no or low cost). This typically means finding new markets (a new geography for instance) or a new niche (a new demographic or psychographic category for instance).
2. Differentiate your offering to increase use or uptake
Boosting the use or uptake of products and services is all about removing barriers. This is typically best achieved by educating customers about the benefits of particular products and/or services so that they will use them for the first time or increase their use of them. For example, car manufacturers will introduce a new range of colors or new add-on features that help to increase revenues from an existing customer base (customers who have bought cars previously).
3. Raise prices selectively
In theory, a price increase is the quickest and simplest way to increase revenues as an existing customer base will pay a little more for the same product or service. However, some customers may defect or switch to a competitor, thereby having an adverse effect on competitors. One way to help reduce this possibility is to change prices selectively with some going up, some staying the same and maybe even some going down (but going up overall, on average).
4. Ensure a positive end-user experience
By the time you may have increased your customer base, differentiated your product and services and increased prices on average, a business may well have lifted revenues but may have done so at the expense of good customer service and a positive end-user experience of dealing with them. This last step of making sure that customers are happy is therefore just as critical as the three preceding ones, as satisfied customers are likely to both stick around for longer and spend more over time. These are the “bird in the hand” customers that every business should take care of very carefully.