Growth Model Dimensions
There is a classic management slogan saying, “Think big, start small.” It means that if you try out too many things at the same time, you will be overwhelmed and get stuck in details. In this blog, we explain 5 denominational business growth model for increasing sales in 2019.
There are basically five dimensions which you can expand your original business model into:
New Customer Segments
New Sales Channels
Sell the Know-how
By new offerings, I mean that you offer more products and services to the same customers as before.
For example, if you are selling sports shoes online, you might have a few different categories, like:
If you add in another category of shoes such as football shoes, it is still a natural optimization of your core business model: selling affordable sports shoes online!
This growth dimension is based on you knowing your customers very well and being able to offer them more and more things based on this relationship.
If you take the first step with a partner (and it is very successful), you can then take a further step and do it on your own.
Adding new offerings to your website is a very natural growth path, but it has some pitfalls. There are a lot of bad examples out there of websites that have completely lost their heart and structure by having too many offerings in the same place.
Instead of increasing the sale, this can dilute the trustworthiness and the sales funnel effectiveness, meaning that your conversion rates will drop.
If you have concluded that a new offering is the right growth path for you to prioritize, you need to make a strategic decision on how it should be integrated into your online hierarchy.
If the new category is far off and makes your website appear to look ”messy,” it might be better to promote it under a separate website. This way you can keep a “clean” and trustworthy story around specific niches you are targeting with each website.
Make a strategic decision between creating a new category vs. a new website
The downside of having separate websites is that you need to optimize both the organic and inorganic search traffic for more than one website. However, it does not necessarily mean more administration work to have separate websites for separate offerings.
If you build your system smartly, you can separate the “front-end” from the “back-end” of the system. The “front-end” is everything that your customers see and interact with, which can look completely different and must be optimized for the specific offering.
The “back-end” is the “engine” of your system, i.e, how products, orders, and payments are stored in databases and how you can access a control panel to manage these.
Separate the “front-end” and the “back-end” to get synergies from different websites with similar business models
When you grow by adding more offerings, it is important to keep a “trial and error”-approach. Remember that if you decide to expand the offering in one direction, you will not know the results until you see how the customers respond.
Adding on more and more offerings can also put you in a bad spiral of making your website too “messy.”
It will require some discipline to analyze your offerings and remove products or even whole categories that don’t add significant value.
The best way to do this is to continuously evaluate your offering using the “Pareto Principle.” This means that you rank your products (or categories) in a falling order based on their share of the total accumulated sales value they stand for.
For example, in the picture below you see the example that three shoe categories (Running, Indoor and Trekking) together stand for over 80% of the total sales. These are your “A-products” and should be a top priority.
On the other side of the range, you see that Golf and Cycling shoes only stand for around 1% of the total sales. Hence, the question you need to ask yourself is if it is really worth to keep them? The customers of this kind of shoes maybe have a different purchase pattern than your typical customers?
It would probably take a lot of time and effort to turn these categories into higher sales volumes. Probably you will get a better “return on investment” if you focus your time and energy on driving up the categories that are already selling well?
Continuously Pareto-evaluate your product line and “cut the tail” of non-value adders
Just note that sales volumes are not the only parameter. You also need to consider what margin you have on different product lines and how much effort they require to be properly managed.
Besides growing “horizontally”, meaning that you add more categories in your offering, you can also work on the “service component” of the products you are already offering.
Offer enhanced services connected with your product
What kind of enhanced service you can offer depends on the kind of business you are in. Here are a few general examples to explore:
1. Customization - How can you make the product unique to your customer?
Printed name or initials?
Customers making the design by themselves in your online store?
2. Prioritization - How can you offer your customer VIP treatment?
Priority access to products on sale (before other customers?)
Faster delivery of your goods?
3. Logistics - How can you make the delivery process more convenient?
Help to carry goods into apartments and other destinations?
Help to mount the product (e.g., if you are buying furniture?)
SMS notifications of delivery status?
4. Sustainability - How can you help your customer to be environmental friendly?
Recycling of exchanged goods (e.g., if you buy a refrigerator?)
Off-set the CO2 emissions from the product/service?
5. Insurance - How can you reduce the risk for the customer?
a. Money back in case the product gets broken?
b. Money back in case the service gets canceled or delayed?
6. Financing - How can you help your customer manage his cash flow?
Not paying up front, but instead in the future?
Leasing instead of buying a product from you?
The possibilities are endless!
New Customer Segments
The second dimension you can grow it is to offer the same products but to a different customer segment. Customer segments can be “carved out” in different shapes and depend a lot on what kind of business you are doing. Here are a few variables that can be used to define customer segments:
Legal entity - The difference between doing business with consumers (B2C) or business with other companies (B2B). Other entities are organizations and governmental/municipal bodies.
Industry segment - Valid for B2B. The industry segment your potential customers are working in (e.g., production, retail, hotels, restaurants, hairdressers.)
Demographics - Valid for B2C. For example gender, age, nationality or place of living.
Interests – For example sports, IT, cars.
Spending willingness – Customers seeking budget deals vs. premium offers.
Let’s say that you are selling gardening tools to private people who own their own houses (B2C). But you notice that a percentage of your customers are actually “professional gardeners” (B2B). There could be an “untapped potential” to split your offerings in two, to come closer to the specific needs of each segment.
For example, the professional gardeners would not want to see your prices including VAT, and it could be a “knock-out” criteria for them if they could just get an invoice and pay later instead of paying up front.
The professional gardeners will also use your tools much more frequently than the private people since they are serving multiple houses and hence, could be interested in more advanced services, like maintenance service or leasing.
To service different customer segments online, you need to make a strategic decision if you should have a separate or common sales funnel for them.
There are basically three levels of this:
1. Same Sales funnel - Only small adaptations completed based on customers’ input (e.g., showing prices including VAT for private people and excluding VAT for companies).
2. Separate front doors - Already at the top-domain, ask the customer which segment he belongs to. The rest of the interaction will be done in separate sales funnels optimized for each segment (but on the same website).
3. Separate websites - Different websites (and potentially brand names) for different segments. Remember that it is only the “front-end” that needs to differ. The “back-end” can be the same.
Make a strategic decision to have separate funnels or separate websites for new customer segments
If you, for example, are selling some type of clothes or accessories you would most likely come across one segment who is only interested in premium products (high quality, status, and price), while another segment is only interested in budget products (decent quality to low price).
To mix offerings to both these segments on the same website will most likely be confusing for both segments (and drive down total conversion rate). If you can have two different websites you could serve both segments successfully.
When you start serving multiple customer segments, it is important that you review and adapt your marketing as well. You need to ask yourself. How can I reach this specific customer segment in the best way?
You will solve part of this on a “keyword level” since specific keywords can be pointed to one segment. Part of this will be solved on the “marketing channel” level, meaning that you, for example, only advertise your B2B-offer on company forums or your premium-offer in premium magazines.
Adapt the marketing to the customer segmentation (not the other way around)
New Sales Channels
E-commerce is one type of “sales-channel”. Other sales-channels are:
1. Outlets - A physical place (e.g., a retail store) where the customers come to buy the products
2. Sales meetings - When a seller and a customer meeting to discuss a business opportunity, it can either be a pre-blogged or spontaneous meeting (e.g., somebody stopping you on the street.)
3. Phone sales - When somebody calls you from a call-center and offers you a deal. Or the opposite when the customers call a company to buy something
But you can also go the other way around. Meaning that when your fully online concept is proven you can expand into “offline” channels. This is a growing trend for many successful e-retailers.
To start your own outlets obviously requires lots of investments, but if you expand into the other offline sales channels, (meeting, phone, or mail) it can be done with limited costs.
Cross-sell between online and offline channels
Let’s use a sports shoe example again. If you, for example, want to increase the sales of your football shoes segment, maybe one way is to expand into other sales channels?
You could, for example, send a commercial mail to all junior football clubs in your region. Remember that each club probably has hundreds of children as members. In the mail campaign, you offer large discounts for the whole team and offer to meet the team leaders to discuss this.
You later follow this up with a phone call (referring back to the mail) and try to blog a sales meeting. In the meeting, you bring your range of shoes and make an inspirational show engaging the junior players, while you convince the leaders and parents by proposing a discount.
The next season you do the same (since children’s feet grow fast), but you will then not need to do the actual phone call and visit. It should be enough that you send an e-mail with a specific discount code that can be used on your website.
Besides synergizing with offline sales channels you can also widen your online sales channels. This, for example, the case when you develop an application that customers can download and get a better shopping experience from smartphones and tablets. It is typically a bigger barrier to get your customers to download the app, but once downloaded you have a fantastic direct sales channel set-up.
The fourth growth dimension to consider is to expand your online offering to serve more geographical markets.
The most important thing to analyze is how attractive it would be for you to expand your business to a new geographical market. A brief market analysis should answer questions like:
How big is the demand for your product/services in different markets?
Is the demand growing or shrinking?
How is the competition in the market?
Are there any legal differences to consider?
Is there any difference in how your product/service is consumed?
If you are not selling a physical product, this can be a quite simple step. For instance, with Online School we offered our services to a global audience already from the start.
Make a strategic decision whether to adapt your website for different markets or not If you choose to adapt your website, you can either adopt the whole system at the core, or you can use and adapt tools provided by Google.
If you are selling physical products, there are many more considerations to make. As we discussed under Sourcing, Production & Transports in blog six, you need to have a logistics partner who handles international shipping, and you need to adapt to import rules so your products don’t get stuck in customs.
You also need to understand the taxation rules on your home market when you are exporting goods. For example, how the VAT should be handled differently within and outside the EU or any other country you reside and do business?
Document your knowledge and consider if there is a different market or way to capitalize on it
Other ways to sell the know-how is to help other companies as a consultant, where you typically charge a fee per hour or a fixed fee for a certain project defined as a “deliverable.” You can also sell know-how in the form of training and seminars or as being called in as a “field expert” and help other authors or consultants.
All businesses require a certain amount of administration. Most of it is connected to the monitoring and controlling the money streams in and out of the company, for example invoicing customers, paying suppliers and employees, managing accounting and tax declarations.
The good thing with an online business is that it is natural to automate as much of this as possible.
For example, a key enabler to minimize the administration with Online School is that we have built separate administration pages where our customers, partners, and administrators can log in and manage the blogging and update information.
By adopting this “backbone” system to our needs, we have been able to eliminate approximately 70% of all time which was originally required to manage the business.
Automatize as much admin as possible
Another example is the money you owe your suppliers. Instead of them sending physical invoices to you, it is possible to automatize the money handling between you and them. Basically, there are four options:
1. Full integration - Meaning that you code your systems to talk to each other automatically. This is the preferred option for suppliers most connected with your core offering (e.g., the one producing the goods you sell.)
2. Automatic charging of credit card - Meaning that you add your credit card number into your supplier's system which then automatically charges your card on a regular (e.g., monthly) basis. This is can be used with Google AdWords, Bing Ads, and Facebook Ads.
3. Direct debit - Meaning that you give your bank approval to transfer money directly from your bank account to your supplier. The systems for direct debit vary between different countries, while the automatic charging of credit card is most favored by global suppliers.
4. E-invoicing - Meaning that your supplier sends the invoice in PDF to you (instead of in printed form.) You still have to manually pay the invoice.
Obviously, you cannot automatize all admin 100%. E.g., in the second example above you will still need to log in to Google AdWords, Bing Ads, and Facebook Ads to export the receipts of your paid service, to use in your bookkeeping.
However, instead of doing this every time the transaction occurs, you can “batch” the administration work and complete many exports at the same time (e.g., once per month.)
Batch admin that cannot be automatized
The third way to get rid of admin is to outsource it, ideally to low-cost labor.
Just remember that you can’t outsource “your problems,” meaning that you should first go through the two steps of automation and batching. After doing this a while, you can map and document the process so you will know exactly what it is you will be outsourcing.
Consider sourcing from developing countries
Just keep in mind that sourcing from developing county can also increase the complexity of your business. Delivery times can be longer, it can be more complex to return faulty products and there is a risk that products get stuck in customs.
Having the above in mind, it is important to find trustworthy suppliers who are committed to the delivery times you agree on and who are flexible enough to help solve any problems that might occur.
Once the physical product is ready, either in your own warehouse or at your supplier, it is time to deliver it to the customer. Doing this on your own requires lots of resources in the form of transport means (e.g., trucks) and personnel. It is typically smarter that you outsource this to a third party logistics provider.
Fully outsource the logistics
If you are servicing only one or a few particular countries, you can find logistics companies who can handle the whole order fulfillment process for you.
This means that the logistics company will do everything from the storing, order picking, and packing to transporting the goods to your customers. Many logistics companies also offer the reverse process with the claims reception and returning faulty products.
If you are planning to serve a global market, your best bet is to solve the transport service with a global company like DHL, UPS or TNT. They can also handle the whole logistics (also including warehousing, order handling and returns) on a global market, but it requires a larger scale.
One thing to consider if you are sending products cross-borders is to avoid having product trapped in customs. “Proper labeling” is key in this process. However, this aspect differs heavily among countries.
Make sure to discuss potential shipping issues with your logistics partner before you start shipping, to avoid unnecessary costs and angry customers.
Consider avoiding production costs by selling digital products & services
This is of course mainly applicable if you are in the start-up phase. If you have an established company selling physical products, it is probably not something you should stop with. But maybe some of your products could be “digitalized” and sold in different formats to your customers?
If you do sell physical products online, there are still many best practices to keep the costs down. One important choice is which main tactic you use in the sourcing and production: “make to stock” or “make to order.”
Traditionally, companies tend to use “make to stock.” Meaning that they keep (sourced or produced products) in a warehouse from where the goods are sent to the customer. This is usually good for the availability of the product, but it drives a lot of costs and risks:
Cost of the storage room
Cost of the store personnel
Cost of capital tied up
Risk of damage to goods
Risk of “out of stock”, meaning the customer doesn’t receive goods on time
Risk of additional transport cost due to order split
The opposite of “make to stock” is “make to order.” This means that you do not order or produce the product before the customer actually orders it from you. In this scenario, you can avoid the costs and risks above and you get a fantastic way of free financing since you get paid by a customer before you drive any cost.
Use “make to order” rather than “make to stock”
So how does “make to order” work practically? If we use the example of selling children books, you would not print the blog before the order was made.
A decade ago this was not possible, but with today’s technology, you can print in small series at a very low cost. With the rise of 3D-printing, you can even do it for more advanced products, like jewelry, accessories and technical components.
The down-side of “make to order” is that it often implies longer delivery times than if you have a product in stock, ready for delivery. One way to get around this is to digitally integrate your e-commerce system with your suppliers and send the purchased products directly from them, without you actually touching them.
Send directly from your suppliers to your customers
This is called “drop-shipping” and works best for businesses where the customers tend to buy only a few different products at the same time. If the typical purchase pattern is that your customer orders 20 different products from 10 of your different suppliers, it will not be acceptable for him to receive 10 different deliveries.
A middle-way is to keep your most common products in stock but source rare products directly from your suppliers. You can then choose either to split the order or to connect them to your warehouse before sending them as one batch to your customer.