Is Your Revenue Growth Plan Shortsighted?
Your revenue growth plan determines how you’ll increase company income by maximizing both short and long-term sales potential. However, if you’re looking only at the short-term strategies, you may be operating from a “we’re good enough” mindset. Without an obvious disruptor on the horizon, it’s easy to decide, “Let’s just do more of the same!”
This short-sightedness, however, is not just related to revenue planning, the consequences of it likely show up everywhere. For example, many companies fail to prioritize customer experience re-designs and transformations, and I ask those trying to get them prioritized: Is your company short-sighted in general?
This complacency can spell the end of your business, as it did for the greeting card brand, Papyrus, who recently filed for bankruptcy. In an interview with Shelley E. Kohan, Forbes contributor, Roberto Ramos, CEO and founder of The Ideatelier, explains:
"The (Papyrus) brand has also missed taking creative lead and ownership around big celebratory moments and bringing that emotional point of entry into adjacent experiences such as in-store events, co-branded partnerships and collaborations. In essence, there is an emotional scale to the business they’re in which is very experiential and goes beyond selling physical greeting cards.”
Let’s dive into the value of long-term planning, how that benefits your revenue growth plan, and how to balance this with your short-term planning.
What is the Value of Long-Term Planning?
Ultimately, the value of long-term strategizing is that it gives a company the runway to innovate, challenge the status quo and lead disruption (versus being disrupted). If your strategy is to have new products or services, you have the time for market research, product and service development, testing, pilot, etc. You can't do that with a short term plan.
As such, companies should be asking the right questions and then listening for both short and long term opportunities. For example, it’s critical to ask:
How can we provide more value to our customers?
How can we remove customer pain (friction)?
When the innovative ideas come as a result of asking the right questions—but sound expensive—spend more time thinking about their long-term potential value along with the cost of doing nothing, I.E. being disrupted or losing customers to competitors.
If you don’t ask the questions, some other company will. Conversely, you may ask the question but remain unwilling to make trade-offs today. If you’re settling solely for a short-term “tweak and improve incrementally” strategy in lieu of longer-term transformation and innovation strategy, it’s time to find some balance between the short-term and long-term.
Understand the Four Types of Growth Strategies
Long-term business planning helps you think differently about the overall direction of the company. It also provides motivation and insight into the type of performance necessary to meet business goals and develop a successful revenue growth plan. This is especially important when significant internal change is required to maintain competitive advantages.
For example, a long-term goal might be to increase revenue for a particular product by 20 percent over a five-year period. This long-term goal has a measurable direction but it needs a strategy. Here are four common long-term strategies to leverage:
Market Penetration: The goal is to increase market share with existing products or services, using pricing adjustments, marketing and promotions across different channels or added distribution channels. This can be the most actionable of the four strategies in the shorter-term depending on industry.
Market Development: This strategy refers to the process of introducing products or service offerings to new markets. Attaining customers in new sectors, geographies or segments can be a worthwhile strategy. However, knowing when to engage in new client acquisition opportunities requires a well-thought-out strategic approach. This can be the second most actionable in the shorter-term. Still, you need to do market research to determine need and solution-fit in the new market or new customer segment. You also need to determine effective marketing channels and sales strategies.
Product Development: Offering a new product or service for the same market is a wise strategy, but you must be aware of your customers’ long-term needs. Doing research and development or looking at industry trends enables you to anticipate their future needs and position your company to service them. This approach also presents an opportunity to be first-to-market (a disruptor).
Diversification: Creating a totally new product for a completely new market is the riskiest of the four strategies. While it is possible, you need to be clear on what competitive advantage you have for doing this.
Here are a few examples of how these strategies might be used:
Product Development: Creating a premium offering or experience. This strategy could be one you provide to differentiate from tight competition or one you provide to capture a new customer segment/premium offering, like a VIP offering.
Market Development: Acquiring new customers in a new target demographic. This could be the beginning of re-shaping a company into thinking about capturing next gen with sustainable offerings and 'give back' to society messaging
Market Penetration: Acquiring new customers that fit an existing target customer group profile. This could include using new marketing channels or extending where your existing reach goes.
Diversification: Introducing new products or services with an “engine” that can support long-term growth. Your long term strategy is going to rely on new products and/or services, so you need an engine (I.E. team, process, investment) to R&D, test, pilot, refine, launch.
Strike a Balance Between Short-Term and Long-Term
Given the current pandemic and the rapid pivot to work-from-home for many companies, it's reasonable to focus on the here and now—on your team, your customers, your family, and the immediate health and viability of your company to weather the unknowns of the foreseeable future.
As an economic slowdown persists, however, it's tempting to hunker down and neglect planning for the long term. It still needs to be about balancing the short and long term. After you hunker down and evaluate the impact of the slowdown and your cash flow, identify where you can take slow and steady steps towards your longer term vision and goals.
You need to strike a balance between improve and optimize (short-term) and innovate and transform (long-term). Stemming churn cannot be your end-all strategy; eventually you need new customers to keep growing. On the other hand, new customers shouldn't be your end-all strategy because you never reap the benefits of getting good at delivery (improving margins).
When figuring out how to balance the two, consider the differences and how they can work together.
Short-term strategies: Fixing, tweaking, improving, optimizing, fine-tuning how you do it today.
Long-term strategies: Innovating, rethinking, redesigning. In some cases, a long-term CX or digital transformation isn't a growth strategy but merely a "we must do this to stay competitive,” which is typically the case when an industry is disrupted with an Uber, Airbnb, Netflix, Amazon, etc.
For example, a company can spend $2M to hire new sales reps and do additional marketing or they can spend $.5M on fewer new sales reps and additional marketing (short-term), investing the remaining $1.5 into experience re-design, more digital transformation, new product and service development, substantially expanding self-service capabilities, etc. (long term). While $1.5 may not seem like much, over the course of two years that “small amount” turns into $3M and over 5 years, $7.5M.
Make the Case for Your Strategy
Don’t forget to reality check your enthusiasm—is the plan so aggressive as to be unreasonable? If your business case is based on margins being 4x what they are now, that isn't feasible without very very specific rationale. Use these metrics to better understand the reality of your strategy:
Gross margin: Ratio of total direct costs to total revenue. It’s easy to become unrealistic about what the strategy will cost to implement and what the results will be—in addition to how long it will take to see the revenue come in.
Operating profit margin: Ratio of total operating costs (direct costs and overhead) to total revenue during a given quarter or given year. As you grow, overhead costs should represent a decreasing proportion of total costs and your operating profit margin should improve—do you see this trend when projecting ROX?
When making the case for your strategy, don’t forget to do two key things:
Show value early and often. To keep others engaged in the strategy, you need to continually prove the value and growth, from start to finish.
Prioritize and focus. Say no to some things (reinforcing next point about trade-offs)
Look at Tradeoffs
Reminder: you can't do everything. In order to execute and earn buy-in on longer-term strategies for your revenue growth plan, you need to consider opportunity cost. Opportunity cost is the value of a forgone activity or alternative when another option is chosen. Opportunity cost comes into play in any decision that involves a trade-off between two or more options. For example, you can hire 10 more sales reps in the near term to sell more, or you can use that money to invest in a longer-term strategy.
If you have a clear vision and both short and long term goals, the trade-offs will be easier to see. If you decide to make key trade offs, communicate them so you don't lose the value of the thing you said you'd give up or not do, so that you could do something else. Note that this can happen incrementally if teams don't stay in alignment.
For example, you could decide to prioritize and focus on the more profitable customer type only for new sales, walking away from deals that are not your ideal customer type. If you decide to focus sales effort on selling to X type of customer because they are your ideal or most profitable customer, and you’re not going to expand your sales team to keep growing and selling to all types of customers, then you need to maintain that decision and hold people, teams and leaders accountable for those sales.
If you don't, then a sales person is going to sell whatever to whomever to get their commission.
If they’re selling only to ideal customers, maybe their comp should be X% higher for deals with ideal or most profitable customers and less for those that aren't—or no commission at all if you are trying to stop Z type of low margin or negative margin deals ASAP.
Companies can also hold leaders accountable for not approving deals with non-ideal customers. Many companies have a deal review process where leaders can squash these deals; those leaders would just need to be approving or squashing deals based on the company's current directive.
As you make intentional trade-offs, communicate the strategy and the why to develop and maintain alignment around your company vision, goals and both short term and long term strategy.
Think Long-Term When Developing Your Revenue Growth Plan
While long-term and short-term strategies are both critical to your success as a company, it’s more common to err on the side of short-term—and miss the benefits of long-term innovation and growth. Use these ideas to figure out where you’re being short-sighted and how you can bring long-term planning into the picture to create a more effective revenue growth plan.
