The ultimate goal of every company is to make a profit, but they need customers first. Whether you’re starting a new business or expanding it, you need to gather or grow a market before you can become profitable. One of the leading strategies to get to that end is revenue maximization.
Maximizing revenue involves generating as many or as large sales as possible. This strategy is different from profit maximization, as it doesn’t necessarily lead to higher gains. In fact, revenue maximization often involves smaller profit margins or even none at all.
When to Pursue Revenue Maximization
At first, it may seem unusual that a company would pursue a strategy that inherently means less profit. You may want to sacrifice profits for sales in some situations, though. One of the most common drivers behind revenue maximization is a desire to reach new customers.
Studies show that 59% of all shoppers prefer to buy products from brands they recognize. Revenue maximization strategies grab new customers’ attention, even if it means less profit, helping build brand familiarity. It’s an investment where you temporarily make less money to ensure long-term profitability.
Another reason you may pursue revenue maximization is to get rid of surplus products. It can also work as a strategy to attract customers away from competitors. No matter the specifics, it’s important to remember that revenue maximization isn’t sustainable, so it should always be a temporary strategy.
If you decide it’s time to maximize revenue, here are five strategies to consider.
1. Focus on Advertising
No revenue maximization strategy will be as effective as it could be without also boosting advertising. Lowering your prices or creating incentive programs will be minimally effective if consumers don’t know about it. Regardless of the specifics of your approach, you should advertise it.
Make sure you focus on advertising strategies that lead to higher sales. For example, 64% of customers are more likely to buy something after watching a video about it. If you want to maximize revenue, consider setting aside a larger budget for video advertising.
If you’re pursuing revenue maximization to reach new customers, you should advertise to new market segments. You may not want to target less profitable sections year-round, but you could try it occasionally. Since the goal of revenue maximization is to make as many sales as possible, it makes sense to pursue as many consumers as possible.
2. Offer Sales and Discounts
You may not have realized it previously, but sales and discounts are a type of revenue maximization. While you’ll make less profit per item with a sale, you’ll likely increase your overall sales volume. Since 80% of surveyed consumers are more willing to make a first-time purchase if the product’s on sale, discounts can attract new customers, too.
A product or service’s price is the second-most important factor driving purchase decisions, right behind product quality. If you work in a highly competitive market, look at your rivals’ prices and base your sales on that. If you can offer lower prices, even for a limited time, you’ll attract customers away from the higher-priced competition.
What you put on sale depends on your goals. If you’re trying to free inventory space, apply the largest discounts to products with the poorest sales records or seasonal items. Alternatively, you could put the most in-demand items on sale to attract new customers.
3. Consider Selling Some Products at a Loss
Adam Watson CEO at Hollywood Mirrors says maximizing revenue doesn’t necessarily mean selling at a loss, but it’s a common technique. This strategy is risky, but it can lead to some impressive results. Selling at a loss will give you prices your competitors can’t likely beat, allowing you to grow brand recognition and loyalty before rising prices again.
Some businesses never stop selling some products at a loss, a strategy called loss leading. For example, milk is a loss leader for many grocery stores, but they often place it at the back. Since customers have to walk through the whole store to get to the milk, they’ll likely buy profitable products as well, making up for the milk’s loss.
While some stores rely on loss leaders year-round, you don’t have to. You can see positive results from temporarily selling at a loss, like during a sale, too.
4. Pay Attention to Your Billing Practices
If you offer a service instead of goods, you can maximize revenue through billing. In many service-based industries, customers face unexpected or high charges after receiving the service in question. While this model can be profitable, it can also come across as insincere and drive away customers.
Take the medical industry, for example, where 80% of bills contain errors, whether customers realize it or not. If you had stricter regulations and more upfront billing practices, your sincerity could attract more consumers. Being more transparent and willing to make compromises may mean fewer profits, but it can increase customer loyalty.
5. Capitalize on Repeat Customers
While most revenue maximization strategies focus on acquiring new customers, your current ones are an excellent resource. Since people are more willing to buy from brands they know, you can try cross-selling to repeat customers. Use data analytics to see which users are frequent shoppers, then give them more product recommendations.
You can also use your current customers to reach out to new ones. According to a recent survey, 82% of consumers today say positive reviews make them more likely to use a business. If you ask customers to review your goods or services, it can lead to higher sales.
Referral programs are another way to capitalize on your current customers. Consider offering discounts to users who refer others, even if these deals mean selling at a loss. Since people tend to trust friends and family more than anonymous users, these referrals are more likely to lead to sales.
Start Maximizing Your Revenue Today
Every revenue maximization strategy is a gamble. You’ll cut profits while you enact them, but they can lead to long-term success. While you shouldn’t pursue many of these methods as a permanent business model, they can provide a much-needed temporary boost.
Just as you need to spend money to make it, sometimes you need to sacrifice profits to become more profitable. Maximizing your revenue can help you clear inventory, build loyalty and grow your customer base so you can make higher profits.