8 Strategies to Manage Growth (and the Associated Costs of Growth)
Running a small or medium-sized business is challenging. Investing in hiring, marketing and raising prices may drive growth… but also impact the bottom line. Making prudent investments while managing cash is extremely important.
Here are some practical strategies to help leaders achieve long-term profit growth, without putting the business at risk.
1. Stay Informed: Monitor Key Metrics
Keep an eye on gross margin, net profit margin, and other key metrics which make sense in your business. For example, a financial services firm implemented a real-time dashboard to monitor key performance indicators (KPIs), and this analysis helped make informed decisions about their pricing and cost-control strategies.
2. Price Right: Regularly Review Your Pricing Strategy
Research the market to ensure prices are competitive. Your pricing should capture the true worth of products or services in the minds of your customers. For example, a theater owner learned to modify ticket prices based on customer demand, resulting in increased revenue per performance even in slow periods.
3. Bundle Up: Offer Product Bundles
Create bundles of products or services to encourage customers to buy more. This can increase the business’s average sale value and boost profits. For example, an e-commerce platform introduced personalised product bundles based on customer purchase history, leading to a significant increase in average order value.
4. Discount with Purpose: Offer Strategic Discounts
Use discounts strategically to move slow-moving inventory or to attract new customers. For example, a seller of furniture offered targeted discounts for high-end products during off-peak seasons, which had a long-term positive impact on the bottom line.
5. Start Smart: Streamline Your Operations
Review processes and identify inefficiencies. Find ways to automate or simplify them. This reduces costs AND frees up time for the team to focus on what matters. For example, a manufacturing business implemented an automated inventory system, saving 100 man-hours per month. In addition to reducing costs, the time saved was partly allocated to innovation, with good results.
6. Stay Sharp: Negotiate with Suppliers
Regularly review supplier contracts and don't be afraid to negotiate better terms. Consider forming partnerships or buying in bulk to get discounts that boost the bottom line. A retail chain which renegotiated supplier contracts, achieved a 15% cost reduction, which directly increased profit margins.
7. Be Agile: Implement Just-in-Time Inventory
Keeping a lean inventory helps reduce storage costs and avoids tying up cash in excess stock. For example, a food distributor uses sales forecasts to order inventory only when needed. This has reduced warehouse costs and food waste, leading to higher profitability.
8. Work Wisely: Outsource Non-Core Activities
Consider outsourcing tasks like Accounting or IT support to specialised firms. This lowers overhead costs and gives access to expertise to help the business grow. For example, a software developer outsources some projects to an offshore team, which accelerates time-to-market and improves customer satisfaction.
Each business is different but consider these practical strategies to improve your business's profitability and set the stage for long-term success.
Looking to grow profit?
Get in touch with Alliott NZ Chartered Accountants and Business Advisors in Newmarket Auckland for expert advice.
