Revenue Growth – Consider Your Business Model

Model Airplane Do you consider your business model when looking for revenue growth? There’s a big opportunity if you do. From both observation, and direct contact, the marketing activity of 8 of 10 businesses is out of sync with their business model. This means, if you get it right, you can create a competitive advantage that will drive revenue growth now and in the future.

For example, if your business uses a recurring revenue model, subscriptions or monthly recurring charges, then your primary focus should be on understanding and maintaining your best customers. If you rely on multiple purchases of low margin products, consumer goods or quick serve restaurants are good examples, then your focus would be on heavy category users. The third common model is high margin infrequent purchases. Automotive and other durable products are examples. For businesses with a durable products model understanding in-market timing is the key for efficient revenue growth. There are, of course, other models but these are the big three.

Lets look at the fitness industry. Generally businesses in this sector rely on monthly memberships. But, with rare exceptions, their marketing follows the durable model; aggressive offer oriented advertising, focused on specific seasons January or Spring (in-market timing) pared with a hard-sell sales force.

Imagine the revenue growth you would have if you focused on maximizing current members’ value perception, which is a strategy that’s more consistent with a recurring revenue model. Instead of a leaky bucket that constantly needs to be refilled, you would have loyal high-value members who also act as your sales force. Instead of expensive advertising and must-close-the-sale sales people, you would have the sale closed at “good morning.” Revenue growth would come from cross- and up-sell activity and by attracting new members with a similar profile to current best members.

Don’t make the mistake of thinking this is a low cost strategy. It’s not. But, rather than spending money on advertising and sales people, your investment will be in product improvements and relationship marketing. Your target is no longer the occasional, binge exerciser, it’s the frequent and consistent fitness advocate, the heavy category users who are probably not using fitness clubs because they are the antithesis of what this group is looking for. By getting your strategies in sync with the business model and the needs of heavy category users you’ve gained competitive advantage and efficiently generated revenue growth for your business.

If a fitness club were to pursue this strategy revenue growth would come from five sources. Members would:

Stay longer, generating a significantly higher ROI on acquisition cost.
Be more receptive to up- and cross-sell offers.
See and appreciate the value of the product and be more willing to pay full price.
Cost less to serve. Hertz Gold is a classic example of this.
Generate new members because they are willing to advocate your fitness club to peers.

Hip Shots

Think about your business model and consider how your current product, price, distribution and marketing strategies drive revenue growth. Are they in sync?
Consider your competition. Are their strategies out of sync with their business models? This is an opportunity to take competitive advantage.
Design your strategies to reflect your model and to appeal to best customers and/or heavy category users.
Look for opportunities to innovate, to develop new products or redesign old ones, to adjust pricing or distribution, to better reflect your business model and the needs of prime prospects.