When Is Revenue Growth Your Most Dangerous Strategy?March 29, 2016 . .
We’d like to introduce a very special guest today on our blog: #1 bestselling author, international speaker and accelerator, Anne C. Graham. She has offered to contribute her knowledge and expertise to our Grow Your Business month, and share with us: When Is Revenue Growth Your Most Dangerous Strategy?
Without further ado… here is Anne’s post:
Increasing sales revenue is a time-honored tradition in most companies. However, did you know that 40% of companies who experience sales revenue growth will in fact see a DECREASE in profitability?
They’re growing… but in the wrong direction!
Did you know that an astonishing 1 in 6 of the Fortune 500 are losing money?
They are some of the biggest companies in the world based on their revenues… but they’re working for free or worse.
I saw this first hand in the early days of my career when the world’s 2nd largest computer company took deals at any price, hell-bent on reaching the billion-dollar revenue mark in the days when that was still a big number. With so many sales costing them more than they were worth, they downsized 120,000 people worldwide within 4 years and disappeared. The carcass of a once-great company was picked up for pennies by a competitor none of us had ever taken seriously. Those are the business lessons you never forget.
But that would never happen to us, you argue. Well, consider the case of the lab supplies company who was chasing growth… and losing money on an astonishing 40% of their products. I don’t know about you, but I was always taught that the customers are supposed to pay us, not the other way around.
The Flawed Formula
The root of the problem lies in a classic formula that we’ve all been taught: Sell more products and services to more customers at higher prices and lower costs. In fact, when I speak to executive groups, they all agree that’s a fine plan… until we start talking about the statistics I shared above. It then becomes clear that purely pursuing revenue growth is one of the most dangerous strategies that we all take for granted in business.
So let me recommend that you use V2.0 of a Profit Plan to grow revenues the right way. It states that you want to sell more of the RIGHT products and services to more of your IDEAL customers, at higher prices that reflect VALUE, and lower costs that reflect EFFICIENCIES. Get that right and revenue growth can once again be a powerful strategy that delivers results.
Easier said than done, you argue. What are the right products and services? How do I determine my ideal customers? How do I know what value I can price for, and how can I test my pricing in a risk-free way? How can I get out of conventional cost-cutting (which often cuts investments in the future of your business and rarely makes enough difference on the bottom line to even matter) and find those hidden efficiencies?
Here’s a little acronym that will help you stay focused on growing revenues the right way: P.R.O.F.I+T
P stands for Powerful Insights, and if you haven’t yet determined who your profitable and unprofitable customers are, that’s were to start. There’s the hard way – using an accounting based system to get exact numbers based on cost allocations and a number of other messy, time-consuming, or after the fact calculations, usually when its too late to do anything about it. And there’s the easy way, looking at good-is-good-enough-for-good-decision-making information based on the unique and observable profit drivers for your business. I use a tool called the Customer Profitability Diamond that delivers what I call your “Who’s Who” for your 100 biggest customers in less than an afternoon.
R stands for the 5Rs of Proactive Customer Profitability Management, which are the strategies that drive revenue growth in the right way for your business. They are Retaining your most profitable customers, Ramping Up your marginally profitable customers, Restoring your unprofitable customers to Breakeven or Better (only in 1 out of 6 cases do you need to fire a customer!), Regain customers who’ve gone to the competition, and Reactivate the customers hanging around in your database that you rarely hear from. All of these drive good revenues and help more of your customers become ideal customers.
O stands for Obliterating Operational Sludge – those costs that shouldn’t even be there yet creep into your business slowly and steadily over time, just like getting dirty oil in your engine just by driving around town. This blog is about revenue growth, so we’ll save this one for another time.
F stands for Fearlessly Pricing for Value, and it’s the fastest way to generate significant revenue growth, but only if you do it the right way. First, you have to understand how each of your 5R’s perceives the value you get from it, then its relatively easy to tweak prices to better reflect that value. Every 1% you can find will typically drive a 16-38% impact on your bottom line. And of course, you’ll want to test your increases on your “worst” customers long before you pass them on to your “best” customers… all of this flows right out of your “Who’s Who” process.
I stands for Innovation, which is the wildcard to grow revenues the right way. Inventions rarely sell, but innovations always do. When you know your Who’s Who and you understand what they value about doing business with you, you’ll be able to subtly tweak your existing offerings in ways that are hard for competitors to copy. As part of this process, you’ll also be able to identify the gaps that are still waiting to be filled with new products and services, leading to a steady stream of innovations that sell.
+T stands for Taking Action, and to help you do that, I have a little gift for you today – a complimentary copy of the P.R.O.F.I+T Roadmap that will help you identify exactly where to begin to modify your Revenue growth plan so that you’re getting good growth, not growth that’s costing you more than it’s worth.
What’s the biggest mistake YOU ever made when growing revenues backfired?
#1 Bestselling Author, International Speaker, and Accelerator Anne C. Graham is on a mission to help 5 million business leaders and their teams double their profit per employee – or more – in less than one year, in less time per week than they’re spending on email per day. Her new book Profit in Plain Sight includes the 5-step proactive P.R.O.F.I+T Plan to do it. Connect with Anne on Twitter, LinkedIn and Facebook.
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