When the time comes to ramp up your business, and invest resources for growth, you really need to know your numbers so you don’t invest in the wrong things.
Here is a very simplified summary of the key numbers you need to know:
- Where are they coming from?
- Where do you make most of your sales?
- You can break down the first two points by: customers, customer segments, product or service line, SKUs, by state, by country, by channel
- Which product/service areas are constant, in decline, growing?
By knowing this information, it can show you where to focus your investment of resources for growth. It will show which products/services are growing, which markets are growing, which customers are buying the most (and hopefully you will know why, or do the research to understand why), and which geographic territories are growing.
- I talk about margins in the podcast ‘Cash may be King but Margin is Queen’ and if you haven’t fully got your head around the importance of margin over sales I urge you to listen to it.
- It all depends on how hard you want to work and how much sales revenue you want to grow to. My preference is always to focus on high margin products and services as you will make more from less – less complexity, less overheads, less cost, less people, less work …
- To me, it doesn’t make any sense to scale up with high revenue low margin products and services, unless you are able to sell them in mass volume, making a small margin worthwhile. But again, think of the complexity.
- Measure the margins made from your customers, channels, and markets.
- How well do you market to and convert your existing clients to new products/services/offers? If your scale is going to mean new product/service development, you need to have some numbers on the expected sales in year one at least.
- Do you know which of your customers/clients would be prospects for when you scale up? If you have uncertainty around this, you need to talk to them to find out their need for the new ‘thing’ you are developing.
- Have you done the numbers on the investment you will make in scaling up and the expected return on investment? For example, if you were to spend $500K upscaling your production facility, how would you get your return on investment? New customers? New partners? Sales of new products to new and existing customers? Export sales capacity?
- Note: there is always a tendency to underestimate the cost of such development and overestimate the expected sales. Once you’ve done the first cut of your ROI numbers, halve your sales numbers and double your costs as a starting point.
- If you are investing in technology or a new business system or software, your ROI may come to fruition later than expected as these sorts of developments usually take longer than initial expectations. You need to factor in delays from necessary factors such as beta testing, bug fixing, enhancements and rework/retesting.
Sometimes scaling-up funding is provided by venture capitalists, shareholders or other investors. Usually, it will be from the business owner’s own resources (borrowing or equity funding), so if you fail to do your numbers you need to be prepared to lose money.
But on the positive flip side, if you at least run through these summary numbers you will have a much clearer view of whether your investment is a good one, or needs some adjustment first.