As your business matures, internal and external aspects of your operations and marketplace change. Planning for growth identifies the best times to launch new products, make capital purchases, hire employees and increase marketing efforts. Study the basic business growth trends that entrepreneurs are likely to encounter to develop a proactive approach to your company’s management.
Sales, Revenues and Profits
An increase in sales doesn’t always generate an increase in revenues and profits. If you decrease your prices or you sell more low-prices units and fewer high-priced units, you could see increasing sales but shrinking revenues. Track the growth of sales, revenues and profits to determine if you should adjust your prices, distribution methods, product lines or expenses to maximize your business potential. Sales can refer to the number of units you sell or the amount of money you generate. For detailed growth analysis, refer to sales as units sold and revenue as dollars earned. When you know your profit margin, or amount of profit you make per unit sold, you see how sales growth affects gross profits.
When you keep track of your piece of the pie -- or share of your marketplace -- you spot important trends you might not otherwise see by tracking only sales, revenues and profits. Your company could lose market share if the market expands but you don’t capture any of these new buyers, even if your sales remain the same or you see small increases in sales and revenues. Your competitors are busy grabbing a bigger chunk of your marketplace, decreasing your overall percentage of the pie.
Market share grows when new consumers come into the marketplace. This occurs when there is a generational shift toward a product or service, when a locale experiences a population growth, or when an indirectly competing product or service becomes obsolete. The migration of desktop computer users to laptops illustrates changing technologies as a business trend to watch. Savvy business owners have a detailed profile of their target customer and use information such as census data and trade association research to watch for growth and expansion in their customer base. They take advantage of growth opportunities and react to potential declines in their consumer demographics.
As your business grows, so too might your overhead expenses. These expenses include the costs of rent, insurance, equipment, supplies, marketing, human resources, information technology and legal compliance. Divide your expense categories into overhead and production costs to determine if your profit margins are shrinking because of nonproduction expenses. Without watching your overhead, you can lose control of the growth of these expenses, which can significantly reduce profits or lead to a need to raise your prices. Raising prices can lead to reduce sales, revenues and market share.
As your sales grow, your cost of production might increase overall, but decrease per unit, leading to bigger profit margins and increased profits. This occurs when you achieve economies of scale through increased production. For example, as you make more widgets, look for discounts on large orders of supplies. You might be able to make more widgets without increasing the time and labor it takes to make them, reducing the cost of each one. Sales growth can lead to the need to acquire more equipment, supplies and labor. Watch for production growth trends to anticipate the capital and other necessary tools to handle increased demand.