Around The Mountain

What would you do if you couldn’t grow the number of customers your business serves?

For many businesses, new customer growth is how the business grows. Demand determines the size of the business and its concurrent impact.

However, a reality that every business faces is that demand is limited. Even Amazon, a corporate leviathan that sells everything to everyone, has a limited number of customers that they can acquire.

Yesterday, I did market estimates for a new enterprise that I’m partnering on. My partner had thrown out some pricing numbers for a service we’re developing and I wanted to identify what the impact would be for different price points.

The formula looks like:

(Total market size) * (% needing the service) * (% we could capture) * (price) = revenue

Or more simply:

Our Market Slice * Price = Revenue

These are the two key levers to manipulate to grow revenue. The path that most businesses try to take is to increase “Our Market Slice”, with better marketing, direct sales, by expanding the markets they serve, or the products and services they offer.

There’s another path though, one that you can take if developing new customers is a big mountain to climb. That other path is to increase pricing.

At some threshold, when you raise pricing, you lose customers. So the safest way to increase pricing is to add value and charge for it. This comes with its own challenges, because creating new value often creates waste as well (e.g. more revenue, less profit.)

But if your goal is growth and you’re looking at a long climb up the new customer mountain, it’s worth considering the route around the mountain that your existing slice of the market offers.