Sherre DeMao is CEO of BizGrowth Inc., a strategy, training and IP development firm focusied on growing entrepreneurial enterprise value.
Profitability and revenue growth are critical to a company’s sustainability and ability to enhance its overall value. When revenue and profitability are reviewed strictly in the context of numbers on a P&L, decisions may be made without the depth of analysis and consideration behind how the numbers got there to begin with.
The key to driving growth in revenue and profits lies in strategically analyzing three key factors: offerings, market segments and geographic pockets of opportunity. What makes the analysis most insightful is the rating, confirming and ranking process that uncovers hidden opportunities not previously considered.
Confirm Core Versus Value-Added Offerings
You should analyze your offerings with the intent to identify what is core to your business differentiation and what brings added value to your customers. Additionally, understanding the different components within a particular offering is important to effectively analyze its value to promote or potentially eliminate it.
Areas to rate for each offering include:
- Most profitable by margin or volume
- Least labor intensive
- Internal expertise or competency to deliver
- Internal efficiencies in place
- Additional income streams
- Market demand
- Market adaptable
Rate each offering and subcomponent separately based on the following scale: 1 = Best, 2-3 = Very Good, 4-6 = Average, 7-8 = Poor and 9-10 = Very Poor. Using a spreadsheet, once your leadership team ratings are applied and aggregated, you can gain an immediate sense of which offerings are your core offerings and which ones may need to be further analyzed for value-added appeal or elimination.
A value-added offering is one that enhances your core offerings but is not one that is the primary focus of your promotion or differentiation. For instance, a landscape design firm’s offerings included landscape design, outdoor living design, landscape maintenance and landscape staging. Each main category was broken down further into various phases or components, which were also rated. Analysis revealed that shifting the core emphasis to outdoor living design and installation would differentiate and naturally parlay into landscape design and maintenance. Landscape staging was eliminated due to it taking resources away from more profitable offerings.
Prioritize The Most Profitable Market Segments
A deeper dive into market segments is the next focus of analysis. You must have a handle on what your most profitable offerings are to confirm your ideal target market segments.
When identifying market segments, businesses tend to look at demographic and geographic identification only. The demographic aspects are what you can decipher from a Census Bureau report (i.e., age, gender and household income for a consumer, or industry and number of employees for a business). Businesses should also consider the psychographic aspects of their markets. What is the mentality that drives how they live, conduct themselves, function, operate, spend or approach decision-making?
A Pilates studio, whose demographic market could be primarily females between 20 and 70 years old, could define segments more strategically based on their buyers’ money mentality in three segments: old money, new money and corporate money.
Old money clients are the older crowd likely doing Pilates for health and vitality reasons. New money buyers are the 20- to 40-year-olds probably doing Pilates for their appearance. Corporate money is likely a mix of males and females in their late 30s to mid-50s who see it as a fitness stress-relieving factor. This awareness can result in the studio identifying better locations based on ideal market geographic concentrations.
In this next phase of analysis, you check off whichever analysis areas apply to each market segment. The segments that receive the most checks will most likely be aligned with your more profitable offerings and should be prioritized in strategic focus. Take the following into account during this process:
- Desire most profitable offerings
- Desire multiple offerings
- Open to new offerings
- Values support/service, expertise/experience, innovation/solutions
- Least saturated by competition
- Least labor intensive to serve
- Likelihood of repeat business and referrals
- Growing or underserved sector
- Business ownership: minority, woman, LBGTQIA+, veteran, small business enterprise, etc.
As a result of this analysis, a husband-and-wife signage company doing regional business realized their shareholder structure was not serving them effectively for key target market opportunities. The majority share ownership was shifted to the wife who was in the front-facing president and business development role due to her being a minority woman veteran—resulting in gaining numerous supplier diversity-driven contracts.
Leverage Geographic Pockets Of Opportunity
Whether your business is local, regional, national or international, there are hidden geographic pockets of opportunity. This is the third phase of analysis as you must confirm your ideal market segments in order to rank these geographic areas effectively.
The list of geographic areas should first be driven by where you are doing business with your ideal target market segments. In this analysis, you will be ranking each geographic area against the others in each of the analysis points under review.
- Ideal market segments demographically and psychographically
- Highest density of ideal segments
- Expansion opportunity for ripple effect
- Logistical feasibility to serve
- Ability to distinctively promote
- Least number of competitors in area
- Accessibility and convenience to serve
- Supplier and vendor access
- Workforce pool readily available
The landscape design firm mentioned earlier was able to dominate entire housing developments as the preferred company offering outdoor living solutions in their local geographic footprint. Through the insight gained from this process, serving a market that competitors were not targeting was the focus. Competitors were focusing on homes valued at $1 million plus for outdoor living design. The landscape firm focused on homes valued between $400k and $800k belonging to families with tweens and teenage children whose parents wanted a place where all their friends would hang out to keep their children and watchful eye closer.
What this analysis process shrewdly uncovers is how assumptions can negatively and unintentionally impact profitability and revenue growth. Through sizing up your offerings, market segments and geographic pockets of opportunity, your decisions can be more strategic and your KPIs can be more clearly defined.
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