When a business experiences a surge in revenue one year, ambitious entrepreneurs don’t sit back and relax – they keep pressing forward. However, what many learn is that sustaining revenue growth year after year is a huge challenge.
Keeping Up With Growth
Most businesses have a goal of growing revenues from year-to-year. This objective is the same for young startups and mature corporations with decades of experience under their belts. And while it seems rather simple at first, growing revenue becomes more challenging as time passes.
The best way to understand the challenge of growing revenue is to simplify the problem and think about it in basic terms. A business that has $1,000 in sales the first year only has to do $1,200 in sales the next year to grow revenue by 20 percent (which is a pretty healthy percentage in the business world). In other words, it only takes a very tiny increase in sales to create some massive growth numbers.
But what happens when that startup makes $100,000 in year two? While the company shatters expectations, it also raises the bar. Not only does it increase revenue 100-times over, but now it needs to increase sales by $20,000 to see a 20 percent year-over-year growth rate.
Finally, imagine a business that does an impressive $1 million in sales in the third year. This would mean the business grew 10-times over from year two to three. But now, for that same startup to experience 20 percent growth from year three to year four, it has to increase revenue by $200,000.
What happens when this company suddenly breaks even and does $1 million in sales in year four? While any startup would be thrilled to be doing seven figures in the first few years, founders and investors start to question whether the company is headed in the right direction. High expectations have been set, and a lack of growth sounds the alarm bell.
See, growth is easy when you’re small. All it takes is a few sales to produce some impressive numbers. The hard part is sustaining revenue growth year after year after year. The more you grow one year, the more you have to grow the next to keep up. It’s a vicious cycle.
While there isn’t a perfect answer to this conundrum, there are some steps you can take to make your growth more sustainable. Let’s take a look:
Develop a student mentality. You’re never too experienced or successful in learning. Always maintain a posture and attitude of learning; otherwise, you’ll run the risk of settling. Revenued has some excellent content on growing revenue, increasing profits, changing business operating procedures, and optimizing pricing. If you’re looking for help with a tech startup, in particular, the RocketSpace blog is a good one to bookmark.
Eliminate unpredictability. You need to rid your business of as much unpredictability as you can. If you’re depending on month-to-month contracts, find a way to switch over to something more stable. This will help you make more accurate revenue estimates.
Position value over price. Don’t fall for the misconception that you need to be a low price leader in order to capture the customers you want. Most customers are willing to pay more for better quality. Position value over price and you’ll see a whole lot of traction.
Increase average transaction size. You don’t always need to bring new customers on board to grow revenue. Sometimes the most efficient solution is to increase the average transaction size.
The Pursuit of Steady Growth
The number one piece of advice is to avoid premature scaling. When you scale too fast, you set yourself up for failure. Not only does this lead to a misalignment of key business processes, but it also waters down your numbers and increases your expectations in subsequent years. By keeping the path and moving at a steady pace, you can sustain yearly growth, keep investors happy, and set your business up for long-term success.