Before deciding, you need to study carefully the financial benefits of such an expansion, and whether your cash flow can support the additional investment. It is important to determine where and how you will get the money to pay for the additional inventory, new facilities or equipment. The ideal situation would be to expand only when you have already proven that demand exists for your products or services, as proven by your fat bottom line.
14 Types of Business Growth Explained
Businesses of any size look for ways to expand their market share and increase revenues. Companies often choose to implement specific growth strategies to advance their business. Understanding these strategies can help you lead strategic initiatives for company growth. In this article we explain the types of business growth strategies used by companies today with ideas to help you grow your organization.
Business growth is a phenomenon that occurs when business owners, employees and outside factors influence the success of a company. A business grows when it expands a customer base, increases revenue or produces more product.
Growth is the goal of most businesses and is the reason behind many decisions that affect the daily workings of a company both internally and externally. Business growth is impacted by consumer trends, market opportunities and decisions made by company leadership.
Strategic: A strategic approach focuses on long-term growth through specific initiatives. Businesses often move into this growth stage after a period of organic growth. Companies may try to gain a share in untapped markets or plan to produce new inventory.
14 types of business growth strategies
Market penetration occurs when a business tries to generate further growth within their current market. To do this they may try to lower prices or increase marketing efforts to gain more market share. Increasing brand awareness can be an effective way to implement this strategy.
Businesses may choose a growth strategy that involves innovating current products or creating new ones to increase revenue. Some companies choose to take existing inventory and add new features to attract more customers. Investing in the design and creation of new products is one way businesses foster growth.
In the market expansion method, a business tries to expand in their current market by reaching untapped customer bases. For example, an office supply company may try to gain market share by selling to educational institutions, healthcare organizations and government agencies instead of strictly selling to corporate office clients.
Companies who decide to growth through vertical integration strategies take on another part of the manufacturing or distribution process. This may mean that a company begins to produce their own packaging materials or buys a factory that produces a key item for a product.
Productivity and efficiency
Some businesses grow by changing their processes to increase productivity. Efficient production methods can help cut costs and increase revenue. A business may choose to conduct an audit of their manufacturing processes, distribution methods and other parts of their production chain.
Investing marketing efforts into expansion in other locations can also be a growth strategy for businesses. This can mean regional, national or even worldwide expansion of product offerings and distribution. Offering products outside of a current geographical area can generate new revenue streams if distribution is also handled effectively.
Share of wallet
By focusing on customer retention and quality service, companies can initiate growth by expanding sales to current customers. Selling to existing customers typically costs less than other marketing efforts. This strategy can be effective for companies with excellent customer service practices and a loyal customer base.
Companies that choose to grow through diversification create new products for a completely new market. This kind of growth may mean moving into international markets or areas where the company has no prior sales history. Some companies do this by looking for areas of large-scale expansion, hoping to gain market share. Diversified companies may own a stake in multiple industries through a range of product offerings.
Companies may implement a growth strategy by buying another business. A company might buy out a competitor to absorb their market share and acquire their assets. The parent company will then experience growth in sales and revenue. This strategy encourages more immediate growth because a business is essentially buying into a market instead of having to invest time in organic growth methods.
Offering products through new distribution channels is another way for businesses to expand. For example, a company may decide to offer product in retail stores after operating exclusively online. A company may also decide to work with consumers instead of selling just business to business.
New business models
Changing the way you do business can affect growth patterns in a company. When a business decides to make operational changes, they have the chance to create more growth opportunities using other strategies.
Owning shares and investing in other companies may be a way to expand business growth. When a company uses their revenue to increase the assets of another business, they have the opportunity to receive benefits as a stakeholder. This may include dividends, stock options or other investment earnings.
By focusing on a small segment of industry and growing specifically in that area, businesses often find growth opportunities. Small businesses can benefit from this strategy in markets where big businesses already dominate a large portion of the market share.
Strategic partnerships can increase business growth by leveraging the key elements of two or more brands. In this strategy, businesses often create a contract with clear terms outlining the agreement for both parties. Companies from different industries or markets benefit from gaining the attention of another consumer group.
Are there economies of scale that will benefit an expanded operation?
As your business increases in size, costs per unit fall, resulting in lower prices or higher profit – or both. You should only expand if economies of scale will allow your business either to sell your products or services at lower prices or to take more profit per item.
How do you achieve economies of scale? By growing your business, you may be able to buy more. Instead of buying for a single store, you are now buying for two or three stores. Such high-volume purchases will allow you to get lower prices for everything from raw materials to transportation, and warehouse space – even cleaning services.
You may also be in a better position to defend your business against price-cutting by your competitors. As you branch out to other markets, you may be able to sell more and increase your sales. Larger sales volume will allow you to offset lower per-unit profit.
Your business may also benefit from having more resources, in terms of bigger and better premises, increased marketing resources and added product features that provide more value for customers. Your administrative costs-per-unit should also come down, as the costs like advertising, purchasing and other functions are spread among all your locations and products.