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.

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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.