With hindsight I realise I knew it when running my own companies. I saw it repeated when I was Entrepreneur in Residence at the world’s Top University Incubator – SETSquared. But only in companies that were growing fast.
So, what is was it?
There are three key elements:
New Customers. Increasing the number of new customers means you need a pipeline of leads so that you can exceed the rate of loss of customers. The pipeline generally needs to be much larger in “one-off” product sale because there is no long-term income stream.
Current Customers. Know your customers well enough to selling additional or new products to them. According to invesp, the probability of selling to an existing customer is 60-70% while selling to a new prospect is 5-20%.
Profit. Every sale must make a profit whether it be a product or subscription.
As an example, my first company sold a product and subscription support contract. The product paid for its development cost and customers told everyone about it bringing in new sales. The subscription would pay for an hour of support engineer’s time. On average each support issue would take 2.8 hours to resolve. On the face of it we made a loss (and the customer got excellent value for money). But we knew that only 1 in 8 contracts would result in a support incident.
Once your company is generating profit then you have dramatically increased your freedom to operate. Dividends; bonuses; more staff; continue innovation in product and/or process; new products; new investments; etc.
The choice is yours.