( continued from part 1)
Option 6: Grow Your Business Sell With Higher Margin
It is one way to grow your revenues by selling more products, and the other to sell the same amount of products and still make more money than ever before.
How you ask?
By having a bigger margin on your products.
In case you don't know, the margin is what's left for you when a product gets sold after you have paid all your costs like employees (and taxes).
That means if you sell your product for 50$, and after covering all your expenses you are left with 40$ in profit you have a very healthy margin that will help you get that business profitable.
On the other side of the coin, say you sell for 50$ and are left with 2$ in profit…. not a good place to be….
Tim Ferris in his famous book the 4 Hour Workweek says that your product should have a 10 times markup at least, meaning if you buy it for 10$ including all your costs you should sell it for at least 100$.
To me personally, this is often unrealistic when it comes to consumer products, unless you have access to certain resources where you get your products with huge discounts or manufacture by yourself with incredible efficient logistics and overhead expenses.
Otherwise, a 10 times markup will be very hard to achieve unfortunately.
Consumer markets are too transparent and competitive - no matter what you offer, there will be always some guy coming along and selling the same product for a smaller price tag.
With webshops and global competition through the Internet it becomes basically impossible to be the price-leader as those positions are occupied by behemoth companies with resources and a budget the average entrepreneur doesn't even dare to think of.
Look at corporations like Walmart - they have the infrastructure, size and business model to play the game of cost leadership.
But a small business usually is doomed on this path.
In the end this starts the game of “who can make the least amount of money but still survive” which is also known as race to the bottom.
And I know much better games than that.
Then there is this old business saying University professors like to say:
“Well if you can´t make it up in margin, you will have to make it up in volume. “
While this sounds like economically correct common sense and like a no-brainer to do, here is what will keep most business going bankrupt with this strategy:
More volume is often hard to achieve, and requires huge investment in marketing and sales - not everybody can afford that.
Your overhead expense will rise exponentially with the amount of products you sell, meaning more customer complaints, more production failures and more other things to worry about as more work is harder to keep in control in big numbers.
A buyer who is buying only because something is the cheapest, is the first one to write negative reviews and complain about even the smallest details. It sounds contradictory, but quality high-price buyers create much less complaints and are much easier to satisfy than low-price buyers. That's probably because for high-price buyers it simply has to be of good quality and if you meet that standard they will be fine.
But instead the guy who buys the cheapest products ALSO expects it to be of great quality! And this is where many low-price entrepreneurs become desperate.
Instead, the better solution would be to focus on the higher-priced segment and rather sell less or the same amount but with bigger price tags.
How to do that you ask?
Basically there are 3 ways that will always justify a bigger price than any competitor:
Be the fastest.
If you deliver today and it takes your competitor at least 3-5 days, any customer who needs whatever you sell today will buy from you. Even if your price is 2-3 times higher for the exact same quality.
Offer the biggest convenience.
If you can make the process of consuming your product so enjoyable, so easy and relaxing, then people (those with higher incomes in particular) will love to pay a higher price for buying from you.
Have the best quality.
How come that a Mercedes gets sold for more than 10 times the price of a Hyundai? Because it appears to be of so much better quality that people, again especially those with higher incomes, will love to pay the higher price in order to have something they believe is of superior quality.
And here it gets interesting: it does not have to be a 10x better quality to charge a 10x higher price, 2-3x better quality will be more than enough to justify the 10x higher price. Do you see the incredible leverage you will get out of this? Just make sure it offers a clear distinction that what you sell is better.
After all, look at your market and how your company is positioned.
An increase in margin will usually also request a different positioning strategy in the customer's mind to give a congruent appearance to the outside.
In case you have multiple products, here’s my Pro Tip: You do not have to increase the margins on all products!
That way you will keep your offer diversified for many people and still increase your profits!
Option 7: Grow Your Business By Opening Different Sales Channels
It sounds so simple again, but don't underestimate this one.
Logically, if you only have a retail business right now, it would make sense to also open up a webshop and sell your products online.
And here comes the catch: the retail business will require totally different skills, tactics and resources than an online business!
Each of them will come with its own advantages and disadvantages.
You can't expect that if you perform good in retail, you will also be doing great online, the game is a totally different one.
This example shows where many business owners get it wrong, they think it will be similar to their old way of doing business, when in fact they often are in totally unknown territory where all kinds of danger is waiting for them.
When they they make their first attempts and fail, they are often frustrated and decide to abandon this tactic
It does not have to be about on or offline.
You could also be selling building material via wholesale, and are thinking of a direct-to-consumer approach that again would leave more margins for you.
Or you could be selling on Amazon and Ebay, thinking about your own webshop.
Whatever your situation will be, new channels can give you instant access to totally new markets that have previously been closed to you, and yes, they grow your business massively if executed right.
Keep in mind that it will take a certain time on each new sales channel until you will be able to reap the rewards.
Don't expect the dollars rolling in from day one, instead try your best to learn everything you can about the new market and test, test, test all you can to see what works and what wastes time and money. Be in it for the long-term, adapt and improve constantly.
Building new sales channels for our business, if done right, will give you another massive advantage that will bring you a lot closer to financial freedom: an additional stream of income.
If your retail sales should drop, you still have that new sales channel to market to in the worst case. Or if the newly acquired sales channel should come to a halt, the same goes for your retail sales as a backup plan.
That makes your business also much more resistant to setbacks and crises over the long term.
To learn more about what sales channels you can build to grow your business, check also our other blog posts on sales and growing a business!
Option 8: Grow Your Business By Expanding Geographically
The world's biggest businesses are not locally in one country, they are global brands and businesses.
If you achieved it to be a big player in your home market and see that there are other countries and cultures that might equally benefit from the solution your business provides, why should you not offer it to them as well?
Today many businesses sell online anyway, so they often can already see directions to where they have many foreign customers already. The next logical step would then be to look for ways to get a “beachhead” in that country for your business from where you can further lead the expansion.
The important thing to keep in mind here is that depending on the country you plan to expand into, there might be a different mentality and different laws that can mean unexpected trouble for your venture pretty fast.
While all the possible pitfalls are a topic so large that many books have been written about and beyond the context of what we want to cover here, the easier form would be to look for countries that have similar languages, laws and mentalities.
For example, a US business will not have many difficulties to expand to Canada or The United Kingdom.
Just like a German company will probably easily be able to expand to Austria or Switzerland who are also speaking the same language, literally.
But a US-business trying to conquer the Japanese market or a French business trying to expand to China will have major difficulties in the law system, the mentality of people and even things like a different alphabet can cause trouble.
If your business is large enough that you occupied your entire domestic market already, congratulations for coming that far.
Expanding to other nations will probably be the next logical step, but make sure you do your due diligence on the market you are about to enter and find out how and where to start.
As you probably will rely on outside help like specialized lawyers and consultants for this undertaking, there will also be huge costs involved in your expansion. Yet if done right, you can multiply your company that way, if done correctly.
Seek professional advice and set out a strategy on how to enter the market you desire for growing your business. However, you should also consider that it might take a lot of time and very long learn-test-learn-test approaches before you will finally see profitable results.
Option 9: Grow Your Business With Partnerships / JVs With Other Businesses
What should you do if you have no exposure to the clients you want? Easy, find someone who has the exposure you are looking for and partner with them!
I really have no idea why only so few businesses make use of this incredible powerful tactic. Many products can generate a win-win environment for both parties if combined together. Here's an example:
Just think of a store who sells exclusive men's fashion:
By partnering with a local luxury car dealership, they can create special offers for someone who buys a new luxury car to get a discount for tailor-made clothing.
Or for someone who just bought clothes, they could offer a free afternoon driving one of the new cars that are exposed on the lot.
Through this partnership, both parties multiply their exposure to each other's customers.
Whoever becomes a client at the car dealership, will hear of the luxury clothing boutique, and vice-versa.
And at what costs?
Z-E-R-O!
All both parties have to do is follow their business as usual and promote their JV partner everytime they make a sale.
And now let's expand even more:
Would someone who is interested in a luxury car and fine clothing also be interested in a luxury watch?
How about a selection of fine wines in a local winery?
Or a gourmet dinner in the city's leading restaurant?
The possibilities to grow your business in this way are endless.
And there you go, look for a dealer near you who sells luxury watches, look for a fancy restaurant, a local winery, and partner with them too.
And BOOM, you just multiplied your exposure by 5 doing the same amount of work!
You and your new partners are combining each other’s marketing efforts and benefiting from each other!
Isn’t capitalism great?
To have this work in your favour like we have it discussed here you need to obey certain rules however until this system is in place and works for you under the right conditions:
First of all, you have to look for industries or products that are no substitute to each other or that could threaten each other´s business.
That means an insurance broker should not partner with another insurance broker as all of them will be looking to have the client signing the insurance they offer. Instead, look for products that enhance each other´s value or that speak to the same type of customer but from a different angle, like we did it in our mentioned example. With this approach there will be no harm or competing but rather a cooperative environment where everybody wins.
Make sure that the use of the individual products will reinforce each other.
In our example we had the customer profile of a high-income individual, looking for status symbols and enjoyment. By having a clear conception of the client's lifestyle we can assume the needs and wants he or she is likely to have and can then form partnerships accordingly.
All this is a numbers game.
It is very unlikely that everyone will be willing to partner with you right away, even if they can only benefit from it. Some will try to take advantage of you, or expect you to send customers but not the other way around.
I have no idea why some people are so closed-minded, but we also don't have to understand it. Just acknowledge the fact that you will have to make many calls or appointments until you will find that one business that is willing to partner with you under the right conditions. Don´t get discouraged by that, as only one of these joint-ventures can accelerate your growth tremendously!
Make sure you don't get screwed and the situation is win-win.
There will be some who tell you they would like to cooperate when in reality they only wait for you to promote their business while they themselves don't even have a flyer of your offers in their office. Find ways to make sure it will be a fair deal.
And some will “test” you in the beginning, giving you maybe only difficult customers or those that can't be served otherwise. This is normal in such cases, they want to see if they can trust you. Be proud about this fact and give them the best you´ve got to show how you can increase the value of both of your businesses.
Option 10 (for the big ones): Grow Your Business By Acquiring Other Businesses
This tactic is unfortunately not an option for most readers I assume, as hardly anyone has such a massive business by his name that allows him to buy other companies as a whole.
The process of acquiring other companies is again a massive topic with several books and incredible big legal and personal pitfalls to look out for.
To shorten it I just want to look at the growth potential it provides here.
With the acquisition of another business you open yourself up to a potentially whole new market, maybe even in other countries or other industries. And you also get the leverage of other assets like an established brand, a market position or a customer base that often take years to develop and which will then work in your favor.
Think of it like a wedding, you get all the good parts of the business you buy BUT you also get all the negative aspects of it.
If there are negative reviews around the acquired company, bad management has messed up internal procedures or there is a lot of debt, then all these problems are now yours.
Therefore think not only twice but 10 times about where and what business to acquire, and ideally have not only a lot of capital but also expertise for that process. More than one grest company already failed because they “diversified” their effort in a market they had no idea about.
Every industry plays by different rules, being successful in one particular field does not necessarily mean that you know how to do it just as well in other areas. For example, a successful real estate investor might be a genius in the real estate market, but that does not automatically mean that he will also know how to manage a restaurant or run a retail business.
Also the legal aspects can be overwhelming and are loaded with all kinds of do’s and don’ts that you should look out for. For instance the corporate entity can in one case mean you make a smooth and finely tuned fusion with the other business, while another one can mean huge tax payments, limitations and restrictions.
Also the contracts that are used to buy a business will have a tremendous effect on the outcome - whether you enjoy the acquisition of a finely evolved company and reap the benefits or where the old owners still can be the beneficiaries while you get to do the work and pay off the company’s debts - a real nightmare!
Apart from these and many other things to look out for, the potential of a fusion can be tremendous. Often the vertical integration is mentioned in this case, where for example the producer of cars also acquires the producer of the windows, the producer of the brakes, the tyres and so forth.
Like in our previous example if the companies' products reinforce each other you can create an entire ecosystem for your customers where they can have all solutions they need in a given situation in your hands.
If you are successful enough to do so, I am sure you will also have enough budget to hire the best lawyers specialized in company acquisitions you can find - and you should also do that, as this is not an everyday task.
Well, congratulations if you have read until this point!
These were 10 powerful tactics to grow your business!
I hope you could gain some insight and inspiration on how to grow now and where to go from where you are today.
Do you have different experiences? Other opinions? Agree or disagree? Let us know in the comments!
Keep your dream alive!
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