BUSINESS STRATEGY & GROWTH • January 6, 2016
2 minutes Read
In a recent post we reviewed the five stages of small business growth and how small business owners can evaluate their place in the cycle. Regardless of where you fall, before you attempt any expansion, it’s critical to know the difference between sustainable and unsustainable growth, and how to achieve the former. Here are five checkpoints you should hit before you begin to scale up.
1. Find out what customers want. Before you expand, find out what your current and potential customers are clamoring for. Use customer surveys to offer options: Would you prefer to see an expanded menu or later delivery hours? Record customer requests; look for patterns.
If customers want more of what you already offer, scale up with increased availability, staff and space. If most customers want variety, increase options with larger inventory, staff training and added convenience, such as later hours.
2. Increase profit margin. To drive profit growth, focus on items with a higher profit margin. For example, if your sales are divided between services with a 50% profit margin and product lines with a 20% profit margin, focus on selling more services. Use low-profit items to incentivize customers to make high-profit purchases. By focusing on high-profit sales, you’ll increase profitability without even adding more customers or more offers.
3. Broaden your customer base. There’s no point in growing if your customer base won’t grow with you. To broaden it, think about who’s not shopping with you now. What could you add or change to entice a new market segment?
Start by examining price points; lower or higher pricing options could pull in a new group. Next, consider accessibility. Standard business hours might alienate an entire group of working customers. An outdated website might irritate web-savvy buyers who want to research online before they purchase. Finally, consider product or service expansion. If what you offer now isn’t attracting certain customer segments, research which added inventory or services would appeal to them.
4. Build expertise and reputation. Be sure your reputation grows ahead of your business. Product expertise is the bedrock of your business’ credibility, and it comes from high-quality staff training. It’s an investment, sure, but it will build a stronger brand reputation and draw in more customers (see #3). There are plenty of training options available that still allow you to maximize your employees’ hours and attention; consider online training courses or webinars, videos and reward programs.
5. Prepare for more space and staff. Don’t get caught up short after you’ve purchased more space. Be sure to calculate the full cost of your expansion plans ahead of time. That not only means the additional rent or a higher mortgage, but necessary improvements and expanded inventory, as well as new staff salaries and on-boarding costs. Once you have a comprehensive view, consider your financing options. A small business loan can provide the capital to expand your business, reach more customers and increase profitability.
There are many ways to grow a business. The one that’s best for you will support your mission, maintain or increase customer loyalty and allow you to keep your finances stable as you expand.
Photo credit: Shutter_M/shutterstock.com
Stay up to date with the latest financial news.