By far, the most frequently asked question of me is "How do I grow my business?" This is invariably a very complex question, and, as many of you know, there's no simple answer. My response to this question? "Define growth." Some business owners answer with a standard statistical measurement, such as a 10 percent increase in sales, while others struggle to answer at all. Growth means different things to different people. However, owners who make informed decisions and build strong organizations usually have sustained growth, while those who focus solely on sales and external factors have inconsistent growth-if any.
At first, many business owners think of growth in terms of gross sales-in dollars-or in terms of the number of customers gained during a period. These are excellent metrics to use when trying to measure growth or predict future growth. However, keep in mind that the bottom line is to achieve growth in profit. Additional sales volume doesn't always mean additional profit. The cost associated with obtaining the additional sales may outweigh their contribution to the bottom line.
For example, suppose you advertised widgets on the radio for one month. Using the average profit per widget, how many additional widgets would you have to sell just to cover the cost of advertising? I know this is a simple example of break-even analysis, but you'd be surprised how many small business owners rarely analyze their expenditures in that way. A little planning can go a long way toward improving your bottom line.
An area that's often overlooked by owners is internal growth. A company's internal growth can contribute to the profit margin as well. If you've been lucky enough to find the magic formula for growing your business externally, you must focus on your internal growth. External growth without internal growth can create chaos and morale problems within your organization and could be a serious threat to the survival of the business. Systems, policies, and procedures involving point of sale, accounting, purchasing, and even shipping/receiving need to be evaluated and updated. Inadequate systems create excess work and low morale among employees. Low morale equates to low productivity. These internal inefficiencies eventually will affect your product and company culture, which ultimately will negatively impact your customers.
Another aspect of internal growth has to do with knowledge. The most important factor in maintaining a high knowledge base is retaining good employees. When an employee leaves a company, a bank of knowledge leaves that company, and it takes time to replace-if it can be replaced at all. Companies with high employee turnover generally have a low knowledge base, and it shows. Long-term employees know your products and your customers, and they can share this knowledge with new employees. Continually train employees to keep them up to date with new products and developments.
A friendly and knowledgeable staff creates loyal customers, and that should be your starting point for growth. If you're losing existing customers, your focus should be on customer retention-not growth. IBI