Most CEOs are Revenue Growth Junkies
Annual reports are packed full of ambitious plans to increase sales in order to increase profit.
The old maxim “grow or die” applies with a vengeance, particularly if you are in the tech space or if you are funded by venture capitalists.
Growth it seems is an imperative and we rush headlong into a dogged pursuit of an ever-growing top line.
But for most businesses most of the time, revenue growth isn’t an imperative. It’s an option. One way, among many, to increase profits in any given year.
And for some companies it makes sense to look inwards for additional value or improved efficiencies rather than outwards for increased sales to drive margins.
If your business for whatever reason cannot grow revenues this year or chooses to take a growth pause, you can always improve the bottom line by:
Reducing the Cost of Poor Quality (COPQ)
No matter how well run you think your business is, there will always be efficiency improvements to make, particularly at a time of increasing business process automation and decreasing technology costs. For a manufacturing company this might be cost savings through reduced scrap, rework, warranty interventions or product returns, allowing resources devoted to these activities to be freed up in future for value added activities.
Changing How You Supply Your Products or Services
Who says that you have to continue offering your products in the same way as you always have? Look at the unnecessary costs that you might be burdening your business with and either eliminate them or transfer them to your customers. Again, for a manufacturing company this might mean reducing packaging costs, increasing minimum order sizes, charging for delivery or changing your discount terms.
When was the last time you increased your prices? If you are not reviewing them regularly, you are not testing the true market value of your products or services. If you are not brave enough to increase prices across the board, then put them up selectively, beginning with your least profitable customers. You risk losing a few of them, but the additional margin generated from the price rise will more than compensate for this.
The beauty of following this strategy is that you strengthen your business from the inside out making it possible to grow more quickly in the future.
Does this work in practice?
You bet it does!
Not so long ago, I worked on the management team for a business that was making a multi-million- pound loss. Revenues were in decline and it was difficult to deliver increased sales without re-engineering the operation from the outside in.
Year 1. Reduced loss. No revenue gain.
Year 2. Further loss reduction. Small revenue gain.
Year 3. Breakeven. Large revenue gain.
Year 4 onwards. Very impressive top and bottom line growth
Perhaps, it is worth reminding ourselves every once in a while of that old adage:
“Revenue is vanity; profit is sanity, but cash is reality”Anon
What has been your most successful way of increasing profits without increasing sales?
I’d love to hear from you.
If you are able to grow your revenue, you might like to read my related blog post: