Want to increase revenue? Join the club. It’s a common way to grow a business. And while it’s a big and sometimes elusive task, the principles are simple. So let’s start there.
Revenue is the number of sales x the value of sales, so you’ll need to increase one or both of those things. And that leaves you with five core strategies to choose from.
Five strategies to increase revenue
Increase number of sales:
Increase value of sales:
1. Encouraging more purchases to increase revenue
Businesses that want more revenue typically try to add new customers. There’s nothing wrong with that – it’s number 2 on this list – but you also want to maximise sales with the customers you’ve got, too. Do that and any new customers will also end up being worth more to you.
Make buying easy
Take away any obstacles that might prevent people from buying. For example, you could offer online ordering so customers can get what they want without travelling or calling. Or go a step further and set up standing orders, so regular customers don’t have to think at all. Your products or services simply turn up at agreed intervals and all the billing happens through direct debit. While you’re thinking about payments, you might also consider accepting cards. It’s super convenient for customers and allows them to buy on credit while you get paid straight away.
Try to make your billing sympathetic to customer cash flow. Just like you, they’ll avoid purchases that run down their cash balances. But spreading payments over longer time periods may make it easier for them to fit you in their budget. For that reason, flat fee billing, retainers, and subscription billing models are often welcomed and can enable more business to flow.
You may be able to encourage repeat business by communicating more directly with your customers. Most businesses do this by adding customers to a database (or social network) and contacting them about relevant products, services, or news items. It can be a fine line. You don’t want to burden customers with spam or clog up their social feed. But for the right brands in the right industries, this can be a great way to stay top of mind with customers that want to buy from you again. Just don’t make all the comms about you. Try to deliver content that’s valuable or entertaining to your customer.
You can always encourage more spending by offering extra value to your customers. Everyone loves a bargain. You just have to be wary that you don’t throw away profits to get those extra sales. Discounting eats margin and can destroy your profitability (see How not to increase revenue), but there is an alternative.
You can bundle several services or products together in a bulk deal. Yes, there’s a discount, but it’s spread across several items. Instead of discounting the one item you sell to a customer, you discount one item but also sell one or more others at the usual margin.
2. Finding new customers
Up your referral game
A quick way to boot up your marketing is to ask for referrals. Seriously – just ask for more business. Your existing customers can be powerful advocates and, what’s better, they tend to refer other people just like them. So good customers send more good customers. Build a referral request into your customer comms to kickstart a word-of-mouth marketing engine. Service businesses often find this simple step makes a big impact, but it works for retail and hospitality too.
Experiment with marketing
Each type of marketing will generally reach a point of diminishing returns, where you’ve tapped out the audience you’re going to reach through that method. So monitor your return on investment and when a strategy starts flatlining, move spend into new areas. You can run some cheap experiments in social and digital marketing, for example.
Don’t overlook the power of sponsorships, either. Backing community projects, local events and sports teams can win loyalty from the people in your area.
Grow your footprint (in real life or online)
Another way to find new customers is to open a new location. Setting up shop (or office) in a different part of town will get your business in front of fresh eyes and a new pool of potential customers. While that can be expensive, you can start selling online to serve a wider set of customers without lifting a hammer. That goes for lots of service businesses, too. Plenty of professional services can be delivered remotely.
Learn the benefits (and how-to’s) of building an online presence in our guide How to start an online business.
3. Expanding your range of products or services
One way to sell more stuff is to offer more stuff for sale. There are ways to do it without overextending yourself or taking big risks.
Diversify your products and services
Start by asking customers what else they’d like to be able to buy from you. If they’re not overflowing with ideas, then suggest some products or services that complement what you already sell and see what they think.
Check what other businesses like yours sell. There might be some obvious opportunities you’re overlooking. If you’re a retailer, then maybe ask your suppliers for ideas. Adding new products or services can add cost and admin hassle so start small. Roll out new service ideas to select customers, or put new retail items in small displays before you commit to big orders.
Offering more without actually offering more
You may be able to sell your product or service to a wider audience simply by calling it a different thing. For example, someone who does landscaping for single-family homes could easily pitch their services to nearby holiday homes, retirement villages, or public venues. Those sorts of jobs are made up of the same services. You just take what you always do and package it differently.
4. Upselling to increase revenue
Upselling is the practice of moving customers towards premium products or services that have wider margins. You can test the water by placing higher spec products or services next to cheaper alternatives and drawing attention to the extra features. If you want to move customers up a few price points then you’ll need a compelling case. Make sure you understand what’s important to your customer so you can better pitch them on the upgrade. Be patient (not pushy) and test your messaging with a highly cynical friend (you’re bound to have one) to make sure you’re not going to put people off.
Introductory deals are another way to introduce customers to the benefits of premium products or services. That way they can learn the benefits of an upgrade without any initial change to their budget. Hopefully, they’ll find the new product or service too good to go without when normal pricing resumes.
You can also offer upsells in the form of add-on services, such as user training or maintenance calls. Not only do add-on services create more revenue, they can build your relationship with customers to reinforce loyalty and open the door to repeat business.
5. Lifting prices to increase revenue
You can generally increase revenue by lifting prices (or estimates), so long as the changes don’t scare away your customers. The process is, of course, more nuanced than slapping another zero on your price tag.
The first step is to understand your existing margins. This is the difference between what it costs to provide a product or service, and what you make from its sale. Your margin will probably have shrunk since your last pricing change because that’s just the way inflation works – your costs will have gone up. Once you know your current margin, you’ll be well placed to decide on a new, more sustainable one. The right accountant or bookkeeper might also be able to tell you the norms for your industry. Or they can look at your overall cost profile to help you calculate a workable new target margin.
If you’re a service business that provides estimates or quotes, this analysis of costs and margins will allow you to see where past estimates may have gone wrong. It’s often the same aspects of a service that run over budget. Instead of always eating that extra cost, you can begin to build it into more realistic estimating models.
Read more on raising prices – including how to break it to customers – in our guide How to increase prices.
The problem with increasing revenue
More revenue is good, right? In lots of instances, yes: but keep in mind that it costs money to make money.
Higher operating costs
You will likely have to buy more inventory, hire more people, pay more freelancers, or put more money into marketing and sales. There is just about always a cost to growing your sales. You’ll need a plan to meet those costs while you wait on all that extra revenue to hit your bank.
Extra capital investments
Increasing your revenue often means making capital investments in things like new tools and equipment, extra locations, or new technology and software. Think carefully about how much it will cost, where that money will come from, and how long it will take to make that money back.
Oh, and more work
Obtaining and managing higher levels of output may also require you to work longer hours, or hire and train new staff, which you will then have to manage. Do you have the capacity or drive to take on all those extra commitments? Or are there other ways to improve the financial performance of your business without blowing up your work day? Like, can you increase profitability instead?
How not to increase revenue
Discounting might get the till ringing, but it can really shred your margin. A generous profit margin will vanish at the hands of a far more modest-sounding discount:
20% discount wipes out a 25% markup
25% discount wipes out a 33% markup
33% discount wipes out a 50% markup
50% discount wipes out a 100% markup
Rather than straight-up discounting, consider other sales promotions like bundling. That way you’re discounting one item but getting the regular margin on all the other items in the bundle.
Increasing revenue is only half a job
Most small businesses that want to know how to increase revenue really want to know how to increase profits. There’s no point taking on the extra cost and work of building sales if a nice fat chunk of that extra cash doesn’t flow through to your bottom line.
Your costs will go up, for sure. The trick is to make sure they don’t go up as steeply as revenue. Do the numbers carefully to make sure your margin stays intact or preferably increases through economies of scale. Accounting software can help you track margins at the click of a mouse. Meanwhile an accountant or bookkeeper can make sure you’re correctly capturing all your costs – a lot of them are hidden – so you can better understand the risks and returns of growing. Find one in Xero’s advisor directory.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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