One of the most difficult things to do in any business is to achieve sustainable growth. It’s a status that eludes many business owners and a lack of sustainable growth can be the kiss of death if financing sources aren’t available to keep the business afloat.
At Select Funding, we provide small business financing to help companies get to the point where their actual growth capability is sufficient to allow them to operate without worrying about cash flow. The companies who receive financing from us use the money to pursue sustainable growth business strategies that will allow them to meet or even exceed their growth goals.
Here are five sustainable growth strategies to consider for your small business.
What is Sustainable Growth and Development?
Sustainable growth has two meanings, one that is more traditional and one which has emerged in response to the growing global environmental crisis.
The first definition is a simple one. Sustainable growth is growth that is realistic and can be sustained for the long term without running into problems such as a shortage of cash or a lack of other resources. When a business is in a sustainable growth period, it means that it can acquire new customers without requiring a new injection of capital. Said another way, new customers are paying for themselves.
The second definition says that sustainable growth is growth that can be sustained without destroying the environment or depleting non-renewable natural resources. Either definition may be useful and they may be used in tandem, as well. We will focus on the first definition in this post.
How Do You Measure Sustainable Growth?
Before you choose a sustainable growth strategy, let’s review some formulas that will help you calculate when you have achieved sustainable growth.
Calculate Your Break-Even Point
The first calculation you’ll need to do is determining your break-even point, which is the point at which your business is generating enough earnings to pay for the cost of production. Calculating a break-even point is useful because it can help you price your products appropriately, limit the financial strain on your business, and attract new investors.
The formula to calculate your break-even point is not complicated. Here’s the formula to calculate your break-even point in units.
Fixed Costs ÷ (Price - Variable Costs per Unit) = Break-Even Point in Units
Using this formula will tell you how many units you need to produce and sell to arrive at the break-even point.
Calculate Your Sustainable Growth Rate
To calculate your sustainable growth rate, you’ll need two other calculations. The first is your Return on Equity, and here’s the formula to calculate that.
Net Income ÷ Average Shareholder’s Equity
Next, you’ll calculate your Customer Retention Rate, which you can calculate for any period using this formula.
Customer Retention Rate = ((E-N)/S) x 100
E is the number of customers at the end of the period, N is the number of new customers acquired during the same period, and S is the number of customers at the beginning of the period. If you had 300 customers at the beginning of a period, acquired 100 new customers and lost 50 customers, your ending customer count would be 350 and your CRR would be 83%.
Finally, with the sustainable growth rate formula, you can find the rate at which you can acquire additional customers without running out of money:
Return on Equity X Customer Retention Rate
You can use this number to create a sales strategy that will allow you to acquire new customers without needing major injections of cash or additional equity.
Sustainable Growth vs Scaling
There’s one more thing you’ll need to know before we reveal some sustainable growth strategies that might work for your business. Let’s talk about the difference between business growth and scaling.
- Business growth is growth that occurs at the same time that new resources are obtained. For example, if you add new customers by hiring a new salesperson, that would be an example of growth.
- Business scaling is growth at a rate that outstrips the acquisition of new resources. In other words, you may spend some money to scale but the return on your investment will be far higher than it would be with simple growth.
Sustainable growth, as we noted above, is growth that can be maintained indefinitely without a major acquisition of assets or an investment in scaling.
Sustainable Growth Strategies for Small Businesses
Sustainable growth strategies don’t need to be complicated to be effective. Remember, the goal is to maintain a steady rate of growth that allows you to pay for your overhead and doesn’t require regular cash injections. Your earnings should be sufficient to pay for your expenses when you’re in a sustainable growth phase.
Here are 5 sustainable growth strategies to try.
#1: Attract More Customers
Attracting new customers requires money but it is also a reliable way to achieve sustainable growth. The key is to manage your marketing expenses to make sure they’re not so high that they cancel out your revenue growth.
You can attract more customers through content marketing, paid advertising, or even with a customer referral program. Branding also plays a role because the more brand recognition you have, the easier it will be to attract new buyers.
#2: Add a New Product
There are several ways to achieve and maintain sustainable development with new products. You can add an entirely new product or line of products, as would be the case if a women’s apparel company started making kids’ clothes. Alternatively, you can update existing products or create supplemental products.
Product expansion can also happen through acquisition but that’s not an ideal strategy for sustainable growth because it typically requires a lot of cash to be an effective strategy.
#3: Sell to a New Market
Expanding to a new market can help you achieve sustainable growth but it requires a lot of research to make sure that there’s a demand for your product in the new market you’ve chosen and that you have the resources and infrastructure to meet the needs of that market.
Market expansion could mean moving into a new geographical area or attracting a new market sector. For example, you might have a business that sells cleaning products to janitorial services and expand it by selling directly to consumers.
#4: Sell More to Existing Customers
Your existing customers offer you an opportunity to increase sales by selling more products to them. Customer retention is typically far less expensive than new customer acquisition and that makes it an effective strategy for business sustainability.
You can sell more to existing customers by providing them with information about new products or by streamlining the purchase process to make repeat purchases easy. A great example of this is Amazon’s Subscribe & Save option, which simplifies the process of receiving regular shipments of products and incentivizes repeat purchases with discounts.
#5: Acquire a New Distribution Channel
What if you don’t want to add new products to your lineup? Another option is simply to acquire or use a new distribution channel to sell more products.
An example would be an e-Commerce store opening a brick-and-mortar location or vice versa, a brick-and-mortar store selling online. Either option can help you tap into a new pool of potential customers or even increase sales from existing customers by making it easy for them to buy your products.
Tips to Help Your Business Maintain Sustainable Growth
Here are some things that you can do on an ongoing basis to keep your business growing with a focus on sustainability and long term growth:
- Focus on customer satisfaction. Today’s consumers (both B2B and B2C) are highly likely to research a company before buying any product or service. When your existing customers are happy, they’ll leave positive reviews and feedback about your company and be more likely to recommend your products or services to their friends and family.
- Make customer retention a priority. On a related note, and as we mentioned above, retaining customers by providing long-term value is a key to sustainable growth. It costs less to retain existing customers than it does to acquire new ones.
- Learn from your customers. Your customers and clients have already bought from you but are you listening to what they say? Customer feedback, both positive and negative, can help you identify issues with your products and find ways to improve them – which can, in turn, drive sustainable growth.
- Track your growth with KPIs. Key Performance Indicators are useful because they can help you see what’s happening with your growth and identify areas for improvement. Some KPIs related to sustainable growth include Gross Margin, Gross Margin Return on Investment, Customer Retention, Contribution Margin, and Employee Productivity.
Using these tips after you have achieved sustainable growth will make it easy for you to spot problems before they interrupt your growth. Keep in mind that long-term growth requires flexibility, so you’ll need to be ready to pivot if your strategies stop working.
Achieve Sustainable Growth with Affordable Financing
Sustainable growth is the sweet spot for many businesses because it allows the business to grow at a rate that doesn’t require additional capital or new investors. You can use the strategies and tips we’ve included here to help your business achieve sustainable growth and meet its goals.
Do you need external financing to achieve your company’s growth goals? Select Funding can help! Click here to learn about our small business financing options and apply today.
