Focus on Profit, Part 2: Increase Revenue

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When we desire to increase profits, we look at two means. One is to cut costs (click here for details from Part 1) and the other is to increase revenue.

Sales are the lifeblood of most businesses.

The Basic Business Model goes like this:

Leads x conversion = customers x average selling price x number of transactions = revenue x cost percentage = profit 

There are actually only four ways to increase revenue:

  • Increase the number of customers
  • Increase the average transaction size
  • Increase the frequency of transactions per customer.
  • Hone your prices.

Let’s discuss each of these.

Increase the number of customers.   We can expand our geographic reach, especially now due to the benefits of technology.  We can increase sales incentives for your sale team – reps and sales partners for new customers.  The incentives can be temporary for a short-term boost or longer term with a revised commission structure.  (Just be careful with longer-term commission structures. Once you give something to someone it’s hard to take it back.)

Also, capped or declining commission plans may need to be changed.  These can be unconsciously unmotivating and incentivize sandbagging and pushing sales out.  I prefer “big carrots.”  For example, instead of a decreasing commission percentage as sales volume goes up which seems like the typical model I see (10% for the first 100K, 8% for the next 100K, 7% for the next 100k), consider reversing it (10% for the first 100%, 12% for the next 100K, 15% for the next 100K).  Pay a higher commission to the higher producers.

Increase the average transaction size.   This is best done by sweetening the pot.  Help the customer want more of your product or that a higher level of your service is the wise, logical choice for them.  For example, add bonuses, additional products, and services to existing products to sell at a premium rate.  Bundle related products to incentivize a larger purchase.  Improve marketing so the customer sees all the features in your product that will solve a problem or ease a pain-point for them.

Increase the frequency of transactions per customer.  Simply put, make buying easier.  How difficult is your purchasing process? If your online shopping cart is hard to navigate, customers won’t come back. Run regular tests of how simple or difficult it is to make a purchase from your company whether in person or online.

Hone your prices. Increase or lower pricing based on research, trends, and customer feedback.  If you charge too little, the perceived value goes down. If you charge too much, you’ll turn away customers.

Take some time to consider these changes to increase your bottom line.