As an accountant, I am often asked by my clients for tips to strengthen their revenue stream. In fact, it is also a conundrum that I as small business owner, face.
To improve your revenue streams you will need to understand what drives revenue and which lever you need to pull.
Revenue is the main result from the following:
This is probably the hardest and most expensive to achieve in the short term. It can generally be achieved through:
- Referrals from providing excellent service to existing clients
- Introducing new products and services
Increasing prices on a regular basis is often needed to cover costs, but is also a mechanism that some businesses use because it is easy. However, this I am afraid is a short term lever as you will become uncompetitive and even your most loyal customers will start to look elsewhere.
Additional sales to existing customers
This is probably the easiest to achieve and the most probable because of the multiplier effect.
For example you know you have 100 customers that make on average 10 purchases at an average price of $100. That means you are getting a revenue of $100,000. Therefore if you could increase sales to 12 purchases per customer then, you will increase your revenue by $20,000.
Additional sales to existing customers can be done by either understanding your customers and identifying gaps in their needs or introducing new products and services your customers may need.
New products and services
This has been covered in 1 and 3 above.
All of the above
This is the ideal result as the multiplier effect creates a greater benefit.
Using our base sample above. Assume we increase customers 5% average purchases by 2 and average sales price by 2%. This will result in additional revenue of $28520 ((105*12*102=128520)-100000). So by obtaining 5 new customers, increasing sales to customers by 2 additional sales pa and increasing prices by 2% we increase revenue 28.5%
Finally a note of caution: you must focus on all your customers. You cannot rely on the big customers alone as you run the risk that they will grow to a position that your business could be threatened should they ever leave. For example, if your top 3 customers produce 70% of your revenue, which in some small businesses is not uncommon; losing just one will reduce your revenue by 10-40%. Can you afford this?
Your accountant has the experience to assist you identify the drivers of your revenue stream and will work with you to develop a plan to protect and grow your revenue stream so please call them.
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