The Only 4 Ways to Increase Revenue in Your Small Business

How this works in practice

Imagine you’re the owner of a small ecommerce selling ethical clothes to new mums. Here’s how you could choose a marketing tactic for each of the 4 methods

1. You could focus on content marketing to attract and convert more visitors. For example, blogs on the benefits of sustainable clothing or educating about the circular economy. This way you can attract a wider variety of shoppers and diversify your income sources. 
2. Or you could work on increasing the average basket size of buyers. For instance, upselling or bundling complementary items together. This could be emails or pop ups with offers when they buy high ticket items. Let’s say 20% off organic cotton socks when you buy recycled vegan leather eco trainers.
3. Perhaps you have a small number of loyal customers. But they only buy every so often. What are you doing to reach them throughout the rest of the year? You could increase buying frequency through an email newsletter highlighting new fashion lines. Combine email with consistent social media posts to entice them to your site more often.
4. Lastly, you could raise the price of your goods. If your highest selling line is an all in one jumpsuit for £7, increasing the price to £8 is a 14% increase. In percentage terms this seems like a big jump. But a £1 increase seems minimal and acceptable to customers. This would increase the average revenue and profit margin per customer in one fell swoop. 

Still unsure which approach would increase your revenue streams? 

Here’s when to use each method, potential drawbacks and how you should set up for each method.

1. Increasing the number of customers that buy from you

When to use it

The other 3 methods focus on ways to increase revenue from existing customers. But there are limits to how far you can squeeze them. They may be price conscious or lack loyalty to your brand.

The obvious method to improve your top line is through new customer acquisition. You could focus on sales-led outreach or advertising campaigns to generate leads. 

This approach diversifies the risk that your income only comes from a small group of buyers. If your biggest client was to change suppliers, would you have to suddenly downsize or slow your growth?

How to set up your business to benefit

The acquisition approach is best suited to sales or marketing led organisations.

First, decide how and where you plan to acquire new customers. 

• Will you expand to new geographic markets?
• Or new sectors? 
• Offer complementary products that will attract a new audience?
• Do you plan to offer a discount to draw new buyers in?

Then consider the different growth tactics available and invest resources accordingly. This could be

• Outbound sales efforts
• Google Ads
• Paid social advertising
• SEO and content marketing
• Referrals
• Affiliate marketing
• Community led growth
• Collaborations with sales partners

How brands grow

The book How brands grow by Byron Sharp argues that the only way to grow is to acquire a large group of light buyers. Sharp argues that loyalty is a myth and consumers don’t want ‘relationships’ with brands. 

Sharp claims that niche segmenting and differentiated positioning is ineffective. He says the only route to growth is to broadly target all buyers of your category. When doing so, you must also increase the mental and physical availability of your product when it is time to buy. 

Mental availability is established through repeated and consistent use of brand assets. This consistency reminds buyers of your brand even when it's not time to buy. 

Physical availability means you are available when the customer is ready to buy. This could be a case of ensuring stores are well stocked. Alternatively, if you deliver a service, can you deliver to the location of your buyers?

Challenges

Lack of marketing budget

Some companies find it hard to grow their current customer base. This is usually the case when you are in the early stages and looking for product-market fit. You may not have the resources to invest in marketing campaigns. 

Small total addressable market

There may only be a finite number of potential buyers for your product. In this case, your customer acquisition costs (i.e. ad spend) will increase as you try to penetrate new markets. 

More clients places demand on your customer service team

It’s important to remember that business revenues ≠ profit. The more new customers you have, the more energy and time required to service them. Rising operating expenses needed will then eat into your business profits. You may need to hire employees, invest in systems or improve operations to meet demand. 

Is it really easier to find new customers?

The advice provided by Sharp may not be relevant to your specific business. If you are in a niche B2B industry, increasing your average sale amount or buying frequency could be much easier.

Disloyal buyers

There is a chance of getting a customer who buys once and doesn’t come back. For example if the customer is disappointed with your service. This is more likely if your growth is dependent on promotions or discounting to drive each sale. It is doubly problematic if you have spent heavily on LinkedIn or Facebook ads to acquire them.

2. Increasing the average amount of each sale

When to use it

This approach is best used when you:

1. Have an existing customer base, or contact list, to monetise
2. Have a range of complementary products or services to sell

Do most of your sales consist of single items or subscriptions on the lowest tier? 

If you already have some customers then encouraging them to spend more could be a fast way to higher turnover.

How to set up your business to benefit

Bundling

“Do you want fries with that?”

You can increase your average transaction size by upselling complementary items or bundling. Bundling refers to selling items as a package for a discounted rate. 

Fast food restaurants are the masters of bundling. As is your broadband provider cross selling digital TV and telephone packages at the same time.

Upselling to increase average order values could involve adding product recommendations. For example, at the checkout page on an ecommerce site or in your email newsletter. It could also take the form of longer contracts if you are in B2B sales. 

Good-better-best

You could also take inspiration from the pricing strategies of SaaS companies. Namely - the good-better-best practice of providing tiered packages. 

1. Good is the basic, stripped back option. 
2. Better is the typical package 
3. Best is the premium version.

Indie hackers are more likely to choose the cheaper, basic option. Enterprise will need the best option usually. Especially if it provides more licences and features or beefed up security.

By providing options you increase the chance of people buying (and upgrading later). A low priced option can aid customer acquisition. Especially if it makes the product more accessible to price conscious buyers.

HubSpot uses good-better-best in their pricing options. They then focus on high touch customer service and onboarding. This nurtures subscribers to scale their package up as their business grows.

Anchoring

Also consider anchoring and use a middle option to make an expensive tier more palatable.

I always get caught out by anchoring at the cinema. The medium price is much higher than small and it is just £1 extra to go large. 

I buy large...Scoff it greedily...Regret it...Every time.

Because the price of the large is only incrementally higher than the medium it seems like a better deal. Both to customers and my greedy alter ego after another failed diet.

Challenges

Customer concentration

This tactic could increase your reliance on a small pool of buyers. Even if they are profitable customers it is a risk. If over half of your revenue is with one buyer and they stop buying altogether you could be in trouble. 

The paradox of choice may confuse buyers

People have a natural impulse to want to get the most for their money. When a company offers a wider product range, they may be less inclined to buy. This is called the paradox of choice. 

When you offer more options, people will find it hard to make up their mind. They will spend more time trying to decide which one they like best. If you offer too many choices, then people won't end up buying anything because they can't make a decision.

Negative word of mouth

If you provide a lacklustre service then consider the negative effects of word of mouth. It is likely word will spread and customers will churn.

3. Increasing repeat purchase frequency

When to use it

Instead of focusing on new customer acquisition, existing buyers may be more profitable.

Benefits of marketing to existing customers include

1. The business costs of selling are reduced as you have already attracted them.
2. Increased customer lifetime value as they buy from you over longer periods.
3. You can create ongoing streams of income and predictability.
4. You can expand your marketing channels with referrals from long term customers.

If you have a group of buyers who only buy sporadically, can you turn them into repeat buyers? 

Let’s assume you sell greeting cards. But you only have people buying anniversary cards for their spouse. What are you doing to persuade them to buy Valentines, Christmas or Easter cards as well?

Maybe you provide services, such as web development, and your clients tend to be one off projects. Could you move to a retainer model? 

How to set up your business to benefit

Calculate your purchase frequency ratio

To arrive at your purchase frequency, use the following calculation over a set time period (e.g. 365 days)

Number of orders placed / Number of unique customers

Consistent marketing touchpoints

This approach suits a business that is all in on email, social and digital marketing. 

Your marketing team should create multiple touchpoints to remind customers who you are. This could be regular social media activity that adds value or email newsletters. Use automated reminders and onboarding emails to nudge buying.

You are looking for a strong balance of 70-90% informative and educational content. This will help you stay top of mind and nurture customers. Mix this with the occasional product plug or products on sale to remind them you have wares to sell. But don’t go overboard with constant ‘me me me’ promotion.

Customer loyalty programmes

Another method to increase the frequency of transactions are customer loyalty programmes. Regular promotions with member only rewards will entice them to buy more frequently.

Make it easy to buy from you

Streamlining and removing friction from the buying process can work wonders. Automate your operations with chatbots so you can provide 24/7 customer service.

Make it easy to contact you by phone, email, social media and other channels your customers use. 

An enhanced refund policy can also help to remove buyer indecision. 

Challenges

Disloyal customers

Note Sharp’s argument that customers aren’t loyal and it could be cheaper to promote to a wider category of buyers. 

Customer concentration is a risk

There is a risk if a large part of your turnover is derived from a small pool of clients. If over 50% of your sales came from a single client, what would you do if they moved to a competitor? You may be better off diversifying income streams instead of targeting existing clients.

You may annoy customers by promoting your goods to them excessively

Your company may get a reputation as sales obsessed and weaken customer retention.

This could also lead to perverse incentives and unethical practices. For example, a target to increase leads may sound like a logical performance indicator for a sales rep. 

It could also result in spamming a potential customer with too many messages.

4. Charge your customers more by raising your prices

When to use it

This approach is effective if you 

• Have a lot of demand for your product or service
• Are unable to keep up with demanding customers

Not everyone fits your ideal customer profile. Raising prices is a great way to protect your time and mental health. Reducing the number of customers you serve improves your bottom line. It also improves the quality of customer service to those that remain.

The Pareto principle dictates that 80% of value usually comes from a maximum of 20% of your customers. The rest are unlikely to pay much, won't refer you to others and will submit more customer service tickets.

Is your business overwhelmed with high-cost and low-margin clients? Then increase your prices and establish time boundaries.

Boost your margins

This method also has a dramatic effect on your profitability. Imagine you currently sell a widget for £100 that costs you £80 to produce. Increasing the sale price by just 10% could have a 50% increase in profit margins!

How to set up your business to benefit

Choose your pricing strategy

Pricing is often an afterthought for startups and small businesses. But it is worth reviewing your prices and testing willingness to pay for your products or services. 

One example NFX suggests is a ‘land, then expand’ approach to market demand. When demand increases, firms should focus on market share before raising prices. 

At the same time, they can then upsell premium offerings for the specific area in demand. For example, 24/7 customer service is only accessible to premium subscribers.

How will you increase pricing?

• Across the board increases or just the cost of specific items?
• Will you test willingness to pay on a small group first?
• Could you raise prices in another way? For instance, introducing different payment terms or delivery methods?
• Can you change the way you collect income?  Perhaps from fixed fee to a subscription model?
• Could you introduce dynamic pricing by charging more at peak times (i.e. the Uber approach)?

Differentiate and highlight your value proposition

You will need to have a unique value proposition for this to work. If competitors have a similar offer at a lower price you will lose customers fast. 

Make sure your marketing highlights your differentiation and where you stand out. Promote this consistently and often. Highlight your successes to clients regularly. Remind them where you are delivering value beyond their current payment terms. 

You need a defined sales strategy

This approach requires a committed sales process. If your sales teams like to discount to get deals over the line it will weaken your positioning when prices go up. 

Challenges

Higher prices could scare away business

If you only have a small, price-conscious client base then raising prices could scare them off. If it's not worth the price, then some customers may go elsewhere. 

Potential negative emotional response

You could find that customers have a negative emotional response to price increases. They may believe that they are being ripped off or feel like you don't value their business anymore. This can lead to an exodus of clients and potential future revenue opportunities.

You could choose the wrong pricing strategy

If you increase prices across the board, you could scare off your smaller clients. Or you could increase the price too little and some clients see less value in what you provide. Price can act as an indicator of quality in buying decisions.

Can you combine methods?

You can combine methods to create additional revenue opportunities. But…be conscious of the investment needed to do this successfully. 

You will have more issues to resolve from a more demanding client base. This will reduce profit margins until you can cut customer acquisition costs.

Increasing the number of customers you serve AND the prices they pay requires investment. This may be in marketing, customer service or your technology stack. Most likely, it will be all three. Plus, you will need to hire additional sales resource to convert them.

Which one to choose?

The revenue increase method you choose will depend on a range of factors. Questions worth asking include

• Can you cope with losing some clients or do you need more to stay afloat?
• What is the size of your total addressable market?
• Do you have efficient customer service operations?
• Can you afford to spend on marketing? 
• Are you in a high growth sector?
• Do you have a product or service that is suitable for repeat buying?
• Do you have insight into competitors' prices? 

This will help you understand your current business growth stage and where to focus. If you have a large marketing budget and a great customer service team then client acquisition could work well. 

You need to be sure you have the organisational capacity for each method. Don’t spend a tonne on paid ads if you aren't able to cope with complaints and enquiries.

If you are in a slow growing market with a limited pool of clients then focusing on existing clients could work better.

Realistically, most businesses use a combination of all 4 tactics at various stages. Knowing when to use each one is key. When you decide, choose a North Star Metric to measure results. Then focus your entire business model around it

Lastly, if you are a single owner-operator overwhelmed and unable to keep up with enquiries. Raise your prices. 

Too many small businesses undervalue their work. They then have to turn away good business because they are swamped with low margin work.

Don’t let that be the trap you fall into.