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Four ways to increase market revenue and margin

Module 6: Knowledge framework for growth

Some CEOs place a lot of emphasis on top line (revenue) growth. Others are more focused on margins, or bottom line growth. Sacrificing margin or profit for revenue growth is not a viable long-term strategy. On the other hand, not taking any risks can stunt growth. Here are four ways to achieve revenue growth, with a risk assessment of each.

1. Increase market penetration

The least risky tactic for growth is to sell more to your current customers and to prospects who have similar buying patterns. Figure out how to encourage them to increase the amount they purchase or the frequency of their purchase. This could be through bundling products and/or services, cross-selling products, or providing discounts for buying more.

CEOs who understand the lifetime value of each customer, and then guide their sales team to maximise return on investment of sales time and effort (ROISTE) are the ones most likely to experience growth. Although you may have a slight reduction in the margin/unit, you’ll be selling more units, so the impact on the bottom line should still be positive.

2. New product development

New product development is one step up the risk scale because your company will need to acquire new knowledge and skills, and possibly even new people and systems to develop new products. You can reduce the risk by developing the product with your customers, and by getting early adopters and raving fans.

New product development is one step up the risk scale because your company will need to acquire new knowledge and skills

But to be successful, you'll need to get good at managing the fuzzy front-end of innovation and the speedy back end of product development. You’ll need to invest in training your sales team about the product. All this will require an investment of money and time, with no guarantee of success – which is why it’s more risky than simply penetrating existing markets with existing products or services. The impact on margins will depend on whether you get the product right the first time, or need several “do-overs”, and how you price the new product or service.

3. New market development

New market development is a big jump up the risk scale. To take your current or newly developed products into brand new markets, you'll need to acquire knowledge about the size and composition of this new market. If it's in another country, you'll need to learn about a host of issues that could make or break your success, such as legislation and regulations around your category of product, exchange rates, import duties, reliable partners, and cultural issues. And when you do get an order, you need to make sure you size it to your capacity to deliver. Visit ANZ’s Be Trade Ready site to understand different markets and complete a market action plan.

Acquire knowledge about the size and composition of this new market

Many companies lose money when they try to enter new markets, so make sure you budget enough for new market development, and have enough reserves to cover unforeseen expenses. Getting this right –or getting it wrong – could have a substantial impact on your bottom line.

4. Disruption

Disruption is at the top of the risk scale

Disruption is at the top of the risk scale! This is where venture capitalists like to focus – and where start-ups that apply for programs such as Techstars need to be – because there’s a high reward for well-executed disruption. In an established company, disruption needs to be a strategic decision by the board, because it requires a big investment and there needs to be a shared understanding of the risk involved. It’s best to have a budget line for “new, disruptive products” and live within that budget, otherwise the hit to the bottom line could be substantial.

Remember: revenue growth indicates that customers want what you are selling and value it enough to pay for it. Margin or profit growth suggests you are figuring out how to be more efficient in how you deliver that value to your customers. If you have developed something that your customers need, want and value, new products will accelerate the growth of your company.

Margin or profit growth suggests you are figuring out how to be more efficient in how you deliver that value to your customers

On the other hand, if you have done appropriate market research and identified partners who can help you find ideal long-term customers, there’s no question that new market development or disruption – while riskier – can accelerate the growth of your company.

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