When to Look for Incremental Growth

There are boom times for business, and there are slow times. This goes for entire industries as well as individual companies.

The typical business lifecycle looks like this:

  1. Startup

  2. Growth

  3. Maturity

  4. Renewal or Decline

This same lifecycle can also apply to individual product lines.

In the startup phase, everything is new and the company is still trying to match a solution to a problem in the marketplace. When a company is able to offer a solution at a price that consumers are willing to pay for, they move into the next phase.

In the growth phase, the company or product captures increasing market share. Sales and revenue are accelerating as the market expands and new customers are brought in.

Growth only sustains for so long, and when it slows a company will enter the maturity stage. In the maturity stage, growth is no longer so easy to come by. The market is fully saturated. Sales are somewhat more constant, and still sustainable.

During the maturity stage, the decisions that a company makes will set up the next stage. Either the company will find a way to start the cycle all over again – with a new product, new features, new markets, or a new revenue steam – or they will start to experience decline as competitors disrupt their industry and start to claw back market share.

What is Incremental Growth?

Incremental growth refers to those small gains that a business can make through pricing and payment terms, improvements in conversion rate or acquisition costs, add-ons or upselling, etc.

These are not the massive growth schemes that define a company to investors or to the marketplace at large. They are the small levers that people inside the company pull to help improve the bottom line and sustain competitive advantage.

When to Look for Incremental Growth?

There are people in every company who are there to make incremental growth happen. They are the marketers and sales people who are constantly experimenting and looking for ways to improve the conversion rate. They are the advertisers looking to increase brand awareness in the marketplace. They are the operations and financial professionals looking to save money and improve the internal processes that drive the company.

But incremental growth is never more important than during the maturity stage of a business’s lifecycle. At this stage, the real dynamic growth has slowed or stalled. There is danger of complacency, because this company and its leaders have gotten used to year over year growth and might not immediately know where to turn to in order to renew that growth into the future.

And that’s what makes incremental growth so appealing. In the short term, while a new long term strategy is in the works, it becomes critical to maximize value within the existing business.

Productivity growth, conversion rate optimization, more favorable pricing terms, and improved return on investment in marketing are all ways to sustain some level of growth even while the larger growth curve for the business flattens out.

Those who can pull the levers to drive incremental growth at a mature company are the unsung heroes that keep things moving in the right direction.

The 1% Theory of Pricing

Pricing, in general, is a very under-utilized tool in most marketers’ toolkits. Remember the 4 P’s?

Price, Product, Promotion, Place

It’s the first one!

And today, I want to share with you a bit of wisdom that originally came to me from Rafi Mohammed, author of The 1% Windfall. In the book, Mr. Mohammed uses a simple example to illustrate a way of thinking about pricing that shows marketers and business owners just how important a tool it can be.

Think about the price you charge for your product or service now. What would happen if you increased your price by 1%?

Most people would answer something along the lines of “not much”. That’s because 1% sounds like a very small change. The same amount of people would probably still buy, and revenue would go up 1%. Not a big deal.

But let’s look at an example that illustrates why the “common” thinking might miss the big picture:

Say you sell Widgets for $100 a piece. For every Widget you sell, you have calculated that you earn a profit of $10, after all costs are accounted for.

When you increase the price of your Widgets to $101, a 1% increase, what happens to your profit? It goes up to $11, a 10% increase!

I think we’d all say yes to a 10% increase in our bottom lines. Yes?

When most marketers do think about price, we think that we can increase demand by lowering prices. But why aren’t we talking about higher prices?

If you can justify them, even small increases in the prices you charge can result in massive growth in your bottom line.

Marketing to your Customers: Upsells

This is the first of a three part series entitled “Marketing to your Customers”. The theory here is a very basic one, selling to existing customers is far easier, and cheaper, than finding new ones. So in order to be successful, it’s vital that you master the basic skills of marketing to existing customers. And those skills are different in many ways than the ones required to market to non-customers.

Whether you do it at the point of purchase or at some time in the future, increasing the value of your sales is an important part of growth.

Let’s make up an example to start us off. I run a company that sells dog food online. The average sale is $40. If I can increase that average sale to $44, assuming the number of sales stays constant, then I can increase revenue by 10%. Clearly there are differences between companies in the products they sell and who they sell to, but this advice is meant to be general enough so that anyone can apply it to their current sales and pricing strategies and find success.

Now here is where we have to make a quick distinction between the two types of upsells:

  1. Point of purchase: this refers to increasing the value of the sale as the sale is being made, before the transaction is completed.
  2. Future purchase: this refers to a sale of a higher value product after a customer has already purchased a lower value product in the same class.

Point of purchase upsells have been shown to work well. Car salesman use this tactic with the add-ons not included in the base price of a car. Ecommerce companies will show customers what other customers are buying in an effort to get people to add things to their shopping carts before checkout.

The key here is to allow someone to make their own selection with minimal pressure. Once they do, and they’re ready to purchase, you’ve got them in a position of vulnerability. In their minds, they’ve already decided to purchase, so they’ve made a commitment. And if that commitment is for $40, asking them to spend another $4 doesn’t seem like that much.

Offer multiple versions of a product with higher costs associated with more features, offer product add-ons, or offer complimentary products that you can recommend the person purchase at the same time.

Future purchase upsells use the same philosophy as the point of purchase ones do, but here you get a chance to prove your value before you try to upsell your customer. Included in this kind of marketing is the marketing that “freemium” companies do to try to get people to become paying customers.

The advantage of the future upsell vs. the point of purchase upsell is that you’re allowing the customer to complete their original checkout with minimal distraction. You don’t risk losing the initial sale. The disadvantage is that you are not catching them at the opportune time, when they are most ready to buy.

Later this week we will explore two other forms of marketing to your existing customers to increase revenue.