Is your business goal or one of the objectives this year increasing revenue? Notice I said “revenue” not “sales.” Small business owners often use these terms interchangeably. They are not the same!
Increasing sales is one strategy you can use to increase revenue. You might say, “in order to increase revenue, I have to increase sales.” If you believe this, you’ve missed a critical strategy available to you for increasing revenue even faster.
Let me ask you something. If you kept your sales level (the same number of transactions) and increased your prices, wouldn’t you increase your revenue? You see when addressing a revenue problem, you must use the right strategy to fix the problem. But, if you jump into action immediately increasing sales, you may miss out on an easier and faster way to achieve your desired outcome. Additionally, if you choose the wrong strategy for your issue, you will cause another problem soon after.
If you tend to skip this strategic evaluation in your decision making, you might miss similar opportunities in other areas of your business. Remember the ability to think strategically is one of the 8 factors that influences business growth. So, if you don’t master the skill of thinking strategically, you’re impacting your business growth!
Understanding What Strategy Is
Strategy dictates your actions. That’s why it is so important. When you select a strategy, you choose all the actions that go along with it which results in committing time, money, and people to your decision.
If the difference between strategy and tactics is still a little fuzzy for you, read the post Understanding Strategy vs Tactics: A Key to Business Growth. This post will help you understand the difference and how strategic thinking simplifies decision making.
The fact is in most situations there are only a few strategies you can apply. When you select the right strategy for the situation the tactics are dictated.
You literally are using dozens of strategies in your business right now, but just don’t realize it. As a result, your business may not be working optimally because you’ve unknowingly used strategies that don’t “play well” together. This will cause inefficiency which directly impacts your profitability.
So, how do you evaluate your business to see if your strategies are aligned? By Tuning Your Revenue Engine. This simple yet powerful management model points at what’s not working as it should, then we can review the available strategies in those area vs what you’re currently using. A revenue engine performance analysis is the perfect tool to apply to help you assess your current situation.
Back to Increasing Revenue
If your focus is on increasing revenue, then there are only two strategies you can apply – increase sales volume or increase your price. Now comes the next problem. Which one is the right strategy for your situation?
Tuning Your Revenue Engine gives you the answer. It helps you calculate the critical operational metrics needed to determine the cause of your revenue problem. To start, I would first look at your % Close rate. If it is too high (over 40%) then your price is too low and you’re leaving profits on the table! Raise your prices and you’re increasing your revenue.
If your % Close is in a normal range (20% – 40%), then we would probably need to look increasing your sales volume. Here we would focus your attention on building a sales plan.
Increasing sales bring additional issues you need to investigate. How many more sales can you increase by without causing a production problem? Again, this is a job for Tuning Your Revenue Engine as it will show you your current operational capacity so you can set the right sales goal to maximize your profitability.
See how the strategy dictated your actions. If you raise your prices, the actions are far different than if you decide to increase your sales volume.
Selecting the Wrong Strategy for Your Situation?
What happens if you selected the wrong strategy for your revenue situation? If you have a pricing issue and you increase your sales (more transactions) then you’ll see profitability decrease for sure!
Why? Because you are creating more work for your business and aren’t collecting enough money for doing the work. As a result, your profitability will stay low, even though you have brought in more revenue. You have an efficiency problem.
In another possibility, if you don’t have much additional capacity, is that you create a backlog of work you can’t get done. Because your profitability is low you probably don’t have enough capital reserves to add more capacity. So, you create an even more critical problem as a result of selecting the wrong strategy for the problem.
Did You Select the Right Strategy for Increasing Revenue?
Do you know your % Close rate? Do you know what data you need to calculate it?
You may have the correct strategy selected however something else standing in your way. For example, if you have a capacity challenge, selling more won’t increase your revenue. If you cannot get the work out the door quickly enough, then revenue is slower in coming in the door.
Many business owners have this problem and don’t see it. If you’re trying to increase revenue because you have a cash flow problem, increasing revenue won’t help. In fact, it might HURT your business.
So, make sure you’re applying the right strategy to fix your problem. Strategy drives your tactics (action) and ties up resources in execution. Make sure you have the right strategy for your situation before you start spend time, applying resources, and spending money .
Need Help to Evaluate Your Strategy?
DE, Inc. offers you a FREE Revenue Engine Performance Checkup to quickly assess your operational health and where you should be focused. You can pick a convenient time for getting your FREE checkup by completing the form below.
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