Take it to the top!
Strategies for increasing your “top-line” revenue growth
By Lisa M. Aldisert
In this two-part series, we’ll differentiate between growing your revenue, or what’s known as top-line growth, vs. managing the bottom line. This first article focuses on top-line revenue growth.
Do you differentiate between strategies that focus on top-line growth versus the bottom line? These are two very different approaches, and many business owners do not distinguish between them.
When you grow the top line, you focus on increasing revenues. When you manage the bottom line, you’re really managing expenses.
Concentrating on revenue growth means expanding your business. Your focus is to proactively acquire and retain more customers. This often means going beyond your regular business operations. Your strategic objective is to discover and invest in new markets for your products and services.
Most businesses tend to focus on revenue growth during good economic times. After all, it’s easier to justify incremental investment when business is good and profits are up. But focusing on revenue growth during a downturn can be a great positioning strategy. Your company will be ready to leap forward once the economic environment has improved.
The marketing plan: A critical element
Simply stated, you need a good marketing plan in order to generate new business and grow the top line. It doesn’t matter if you have the best product or service in the world – if you don’t market effectively, no one will know about it. See if you can adapt any of these ideas:
- New ways of advertising or promoting. Think about going outside of your usual marketing strategies. For example, a local retail business may become a significant corporate sponsor for a local 10K race for charity. In exchange for being a lead sponsor, the company’s name and logo will appear on T-shirts and other accessories used by the runners.
Aside from the priceless PR value on the evening news, the company will have the residual benefit that the race participants will continue to wear those T-shirts long after the race. In addition, they will have a built-in, natural networking opportunity with other business leaders who will be involved with the event.
- New channels of distribution. In what other ways can you reach your clients? One idea is to establish a cross-marketing campaign with a non-competing company. A floral shop may partner with a photography studio to reach potential special event clients, such as those having weddings or showers. Another example is the Internet, which may represent a new distribution channel to reach a different clientele.
When exploring new distribution channels, make sure you do market research in advance. Understand what works best for your business. Some channels will be more appropriate for retailers, for example, while others may be preferable for professional service firms. There can be a relatively high cost of entry to access new distribution channels, so do your homework.
- Line extensions. This is the creation of new products or services that are similar to your current offerings. For example, Chicken McNuggets represented a line extension for McDonalds.
Line extensions are usually created to target a different constituency. You want to continue being known for your core business, but the line extension offers additional versatility and revenue potential. Before launching a line extension, do the appropriate research. Establish clear return on investment (ROI) targets so that you can tangibly measure the results.
- Acquisitions. Sometimes the best strategy is to acquire another company that has complimentary products and services that naturally fit into your market. Again, make sure that you do proper due diligence before moving forward.
This is particularly important if you are buying a going concern, not just inventory. The biggest challenge here is to make sure that you can successfully integrate the people from the acquired company into your business. If these people are essential to the smooth operation of the business, you want to make sure they have incentive to stay with you once the acquisition has occurred.
Financial analysis is crucial
To ensure that your revenue growth strategies are financially successful, consider these points:
- Marketing investment. You will have initial and ongoing marketing expenses in order to execute most of these growth strategies. Establish a marketing budget and determine an appropriate ROI. For example, the marketing cost for a new distribution channel may be $75,000. While this may be a big cash expense on the front end, you may project $300,000 of incremental revenue over the next 18 months.
Tracking new or incremental revenues. Another way to measure the success of your revenue growth strategies is to specifically track revenues that are derived from the new effort. Use your accounting software to earmark this new business. You may want to track this on a daily, weekly or monthly basis in order to understand the timing of revenues from the new campaign.
Hurdle rates. In other cases, you will want to determine an “ROI hurdle rate,” or internal rate of return. In other words, what is your breakeven point where revenue equals expenses for your new marketing efforts? Work with your accountant or financial advisor to use a rate that is appropriate for evaluating your specific investment.
Focusing on the top line and business growth can be an invigorating time for any business. It is stimulating to concentrate on new markets, new client opportunities and new distribution channels. But you must evaluate the financial return of these investments. In addition to validating your strategy, this will provide invaluable information for future revenue growth projects.
Lisa Aldisert is a New York City-based business advisor and professional speaker specializing in strategic business growth and leadership development. She is the co-author of The Small Business Money Guide: How To Get It, Use It, Keep It (Wiley, 1999).