Increase Your Bottom Line–Revenues Part 3

1 11 2011

In “Increase Your Bottom Line—Revenues part 1” we explained that, generally speaking, the two ways to increase your revenues (ie. your top line; we are not talking about profit here) are:

1) Increase the number of sales (i.e. if you sell 100 widgets a month, sell 200 a month), or

2) Increase the price per sale (i.e. if you sell your widgets at $1 per widget, sell them instead at $2 per widget).

In “Increase Your Bottom Line – Revenues part 2” we explained the two broad methods of increasing your revenues:

1)  Sell to new customers, or

2)  Sell more to existing customers.

We then touched upon the idea of return on investment.

One thing that we see a lot of businesses miss is an opportunity to easily sell more to existing customers.  To do this, you have to know your customer well and identify their need, but if you keep your vision broad, it is often an easier method of increasing revenues than finding new customers.

Amazon is a perfect example of this.  When they first went online, in 1995, they sold only books.  Now, they sell virtually everything.  The idea is simple – people are already coming to us to buy books, we can give them the option of buying music as well.  This has the additional benefit of bringing in new customers too.  They did it again with the Kindle – people are already buying physical books from us, if we give them a method to buy electronic books, maybe we will sell more (there is a tradeoff though, because for every electronic book sold, that is one less physical book).

Note the return on investment concept coming into play here – to expand into music, an investment must be made, but it is a relatively small investment to sell something that Amazon’s existing customers already buy.





Increase Your Bottom Line–Revenues part 2

31 08 2011

In “Increase Your Bottom Line—Revenues part 1” we explained that, generally speaking, the two ways to increase your revenues are:

1) Increase the number of sales (i.e. if you sell 100 widgets a month, sell 200 a month), or

2) Increase the price per sale (i.e. if you sell your widgets at $1 per widget, sell them instead at $2 per widget).

There are important caveats attached to those two, and a good example.  So please read the first post if you haven’t already.

Let’s look at how to increase the number of sales.  Instead of outlining all options, we can simplify this into two broad concepts:

1)  Sell to new customers, or

2)  Sell more to existing customers.

Keeping these two ideas in mind is very important, especially when you are trying to expand.  Let’s look at the same basic scenario as last time to see why:

In any given month, you sell 100 widgets at $2, for revenues of $200/month.  Now, you want to sell more widgets.  We will assume these are the same exact widgets, and you are not introducing a new product.  How do you sell more?

Sell to New Customers

There are people out there that don’t know that your widgets exist and they don’t know that they need the widgets.  So some sort of marketing campaign could work great.

Sell more to existing customers

These are people that know about your product, but aren’t convinced that they need to buy more than they already are buying.  Increase the value that they are getting from the purchase.  You can do this by providing an easier customer experience (maybe do a survey to learn what might be keeping people away or if there is something that can make the purchase of your product more convenient… something as small as where you sell can make a huge difference), a rewards program, or lowering the price (but see “Increase Your Bottom Line—Revenues part 1” for how this may backfire).  Another great way to expand is by expanding your product line, which we will talk about in a future post.

Getting the Most Return on your Investment (ROI)

Before you choose one of those options and a method for implementing that goal, you need to learn what will give you the most ROI.  Read “How to Solve a Problem” for a brief overview.  In short, work from the ground up with research.  For instance, don’t just implement a rewards program because someone else got a great return from a rewards program.  It might not work for your business.  Learn about why rewards programs work.  A marketing campaign will also remind existing customers that you exist.  So you may get a better ROI there.  Look at what your competition does and how long they have been doing it.  Chances are, if they have been doing something for a long time, it works.





Increase Your Bottom Line–Revenues part 1

16 08 2011

A couple of weeks ago, we wrote a primer into increasing your bottom line.  As a reminder, there are two basic items of focus:

(1) Increase your revenue,

(2) Decrease your costs.

As the title above implies (not so subtly), this post is part 1 in answering the question: How do you increase revenue?

First, it is important to understand the question.  The question focuses on revenue and revenue only.  That is, the total amount (the “gross”) of money flowing into the business. This is not your “profit margin,” or your profit, or your bottom line.  In fact, many businesses suffer the problem of increasing revenue, but decreasing their bottom line.  This can even lead to a loss!

You might be skeptical about this last point.  If a business is bringing in more money, how can it be losing money?  You will just have to trust us.  It happens more often than you think.  This is because there are hidden costs to increasing sales – you might spend more on advertising, shipping, employees, etc.  Each of these expenses might decrease your per item profit margin until some, or all, of your items are actually selling at a negative profit margin and you don’t even realize it!  But that will have to wait for a different post.

So, how do you increase revenues?  Like our last post, it may seem obvious, but it’s more complicated than it sounds.  Here are your two options, stated a little inaccurately (you will understand why a little later):

1) Increase the number of sales (i.e. if you sell 100 widgets a month, sell 200 a month), or

2) Increase the price per sale (i.e. if you sell your widgets at $1 per widget, sell them instead at $2 per widget).

Here is a basic idea of how these two interplay with each other.  But since this is just an overview, we are not going to touch upon the intricacies such as marketing (which targets (1)) and how that might lead you to change your price (either up or down).

In the second example above, note that this would double your revenues, all things being equal. This is an important caveat – if we double the price, we would expect the number of sales to fall.  That is, it would directly affect number 1 (how much depends on the elasticity of demand.  Different items have different rates of change).  If sales fall, then revenues decrease.  At some point, the sales will fall so much that your revenues actually decrease.  So, it is absolutely critical to know whether your price increase will lead to lower revenue.

This works in the inverse as well – decreasing price per sale can increase revenue by increasing sales.  The increase in sales may (or may not) offset the decrease in price.

For example:

In any given month, you sell 100 widgets at $2, for revenues of $200/month.  Let’s say you raise your price to $3.  Now you find that you only sell 20 widgets/month, for revenues of $60/month, a big decrease.

So, you decide to lower your price to $1.50 and find that you now sell 200 widgets, for revenues of $300/month, a big increase.

It can work the other way as well: maybe when you lower your price to $1.50, you only increase to 125/month, for revenues of $187.50 per month, a DECREASE in revenues from your original price.  Now, lets say you increase your price to $3 and find that sales only drop to 75/month, for revenues of $225/month.

So you can see that an increase in revenues don’t always come from an “increase” of sales or price, rather it is a “change” in sales, price, or (usually) both.





Increase Your Bottom Line–a primer

1 08 2011

Everyone wants to increase their bottom line; that is, their profits or the “net.”  But too many people do not have a strategy to do so.  It is important to have at least a basic understanding of how to increase your profit.  For instance, you can spend money on advertising, but before doing so, you should at least have a basic understanding of what you hope to get out of that – brand expansion, direct sales, etc.

The first thing to know is that to increase your bottom line, you have two basic options:

(1) Increase your revenue,

(2) Decrease your costs.

These seem obvious, but we often break it down that simply for people and it turns on a light bulb.  Another realization that seems obvious is that these two things are not mutually exclusive and can happen at the same time.  More importantly, the best business decisions will meet those two goals at the same time.





The Importance of having a FANTASTIC Logo

16 07 2011

Recently I was speaking with an entrepreneur who was bragging about hiring a very expensive graphic designer to design a logo.  The entrepreneur was spending a huge portion of his startup budget on just the logo.  This is a very common and costly mistake!

A logo is your trademark.  As a general guideline, it should be recognizable and unique.  Anything else depends on your industry and target demographic.  For instance, sometimes you will want your logo to obviously indicate the product or service you offer.  Other times, you want it to be more subtle or just be something memorable.  But your logo will never be the key driver of your business.  Having a great logo or a catchy slogan will mean nothing if you provide a bad product or service.  Similarly, having a decent logo will be good enough if you provide a great product or service.

In the case of a startup with very little seed capital, wasting money on an expensive logo is a bad investment.  If you have a large amount of seed capital, then it does not affect you as much.





The Basic Legal Issues Involved in Marketing Your Product or Service

14 07 2011

When you create a website, video, document, or other material for the purpose of advertising your business, your main goal is to convince potential customers to buy from you. However, you also need to make sure that your advertising materials comply with the law. Some of the things you need to think about are:

What Claims Do You Make In Your Advertisement?

There are two types of claims you need to analyze in order to ensure compliance: Express claims, which are claims you make directly, such as “Our product promotes weight loss,” and implied claims, which are implied by the ad without being stated expressly.  Both types of claims are treated the same – you can’t imply a claim that you could not make directly, and all claims must be truthful, not misleading, and have adequate substantiation.  You must assess the net impression of your advertisement, which includes the text, product names, and depictions of the product or other images in the advertisement.

Do You Omit Important Information?

If your advertisement fails to reveal information which is material in light of your advertisement, it might be misleading. Any qualifying information must be disclosed prominently, and not hidden in fine print, and it must be simply and clearly stated.

Can You Provide Evidence?

You must have a reasonable basis for the claims you make. The amount of evidence you need depends a lot on what you are selling. If your product or service is something that consumers will have a hard time evaluating on their own, you need a high level of substantiation for your claims.  How much substantiation is required depends on many factors, including what level of substantiation is considered reasonable by experts in
your field.  

Testimonials, Endorsements, Books, and Articles

You cannot make claims either through consumer or expert endorsements that would be deceptive or could not be adequately substantiated if made directly, and it is irrelevant that a testimonial represents the honest opinion of the endorser. If you use an expert endorser, it is your responsibility to make sure he/she has appropriate qualifications, make sure he/she has conducted a proper examination of the product, and disclose any connection  between the endorser and the product which might affect credibility. You also can’t use other literature in a way that would be misleading.  If you quote another publication, you may be required to substantiate the claims in that publication if it does not include adequate substantiation.

Need More Information?

More information about the laws related to advertising may be found at: http://business.ftc.gov/advertising-and-marketing. There, you will find helpful information, policy statements, and legal guides regarding advertising in general, as well as rules and information about advertising in specific industries.  Remember that certain regulated industries may have additional advertising rules.