How to develop a business growth strategies?

How to develop a business growth strategies?

Claudia Roca

Jun 22, 2022

Jun 22, 2022

Jun 22, 2022

How to develop a business growth strategies?
How to develop a business growth strategies?
How to develop a business growth strategies?

Have you ever wondered if your business growth strategies is working? At the beginning, it's usually quite difficult to understand if our business is growing or not. And this is because we all know that in the beginning there is a period of time in which it's necessary to invest and finance the business for a while until we actually start to see results. 

However, it is logical to ask ourselves, how do we know if we are growing or not. It's necessary to know the state of our business in order to make strategic decisions and take care of our financial health, which, in the end, is what will allow us to continue growing. 

How do we know how long it will take to recover the investment we are making? How do we know if we are making or losing money with each new client we get? If these are questions that you often ask yourself, don't worry, in this article we are going to give you some keys so that you can understand what the growth drivers of a company are and some business growth strategies that you can put into practice. 

Get out your notebook! We assure you that you will want to take note of everything. 

Key metrics to understand business growth

In other opportunities we have talked about CAC and CLTV, let's make a brief review of what these metrics mean in order to understand their importance when measuring business growth strategies

  • CAC is the Customer acquisition cost. That is, the amount of money we invest as a company in marketing and advertising strategies and tools to acquire a new customer. 

  • The CLTV is the amount of time that the customer we acquired spends with us. That is, how much money he/she gives us in exchange for our products or services throughout his/her life. 

CAC and CLTV for business growth

We must always have these two numbers on hand because they are the ones that allow us to understand how our business is doing. 

It's very simple: to understand if we are making or losing money with each new customer we are adding to our business, we must subtract CLTV minus CAC. 

Let's look at an example: if we have a pie business and it is costing us 10 usd to get a person to buy from us, but then that person buys from us several times and has a CLTV of 30 usd, what we must do is subtract 30 usd (which is the average amount of money that the customer leaves in my business) minus 10 usd (which is what I invest on average to acquire each new customer) This gives me as a result 20 usd in favor. That is, I am earning 20 usd for each new customer.

It's all very well so far, but probably this customer won't buy 5 cakes every month, most likely he/she will buy 5 pies in a year. In other words, we will gradually obtain those 30 usd corresponding to the CLTV over the course of a whole year. This means that we will recover the CAC if we manage to keep that customer for 12 months, in the specific case of the example, if we manage to get our customer to buy 5 pies. 

To understand this is essential, especially in the beginning of a business. Because it will allow us to know how much money we need to invest in order to sustain the growth of our company and for how long we should do it. For this, there's another very useful metric that we know as CAC payback

The CAC payback is the time it takes us to recover the investment we made in order to obtain a customer. 

Let's go back to the pie example. If I know that in order to win a customer I have to invest 30 usd and the average ticket of my pies is 6 usd, I know that each customer needs to buy at least 5 pies to recover the investment I made in getting that customer. In other words, when starting a business, I must take into account that I will have the necessary financial backing to advance that money for a period of time until the wheel starts to turn. 

Now, let's look at two business growth strategies that are crucial when we are just starting our business. 

Some business growth strategies

2 tips for growth drivers

Now that we understand how to know whether our company is growing or whether we need to make some adjustments to get better results, we want to give you two important tips that will be useful as growth drivers. 

The first one is a formula, because if you haven't noticed, we are formula fanatics. 

In many opportunities we are asked: how much should I invest to speed up the growth of my business? Well, if we are clear about the two metrics we mentioned above (CAC and CLTV) it's quite simple. 

Do the exercise of dividing the CLTV by the CAC. In our example, if we divide 30 usd (the CLTC) by 10 usd (the CAC) we get a result of 3. This is the potential growth of our business. It means that if we invested 20 usd instead of 10 usd, we would obtain a profit of 60 usd (20 x 3 = 60). This way we understand very clearly how much we can risk investing in order to keep our business growing, as long as the CAC and CLTC levels remain stable.

Secondly, we want to talk to you about another business growth strategy that conditions the speed at which you can grow, that is, the viral coefficient.

Surely you have seen several companies use referral strategies. Tesla, for example, is a brand that in 2016 launched a program in which each Tesla owner could give their friends up to 10 discounts of 1000USD. According to the number of quality referrals, each referrer received a number of benefits in return. 

There are thousands of examples like these. These viral marketing strategies are very good at the beginning, when we don't have a lot of money to invest and we need to grow organically. 

This kind of business growth strategy is nothing more than the classic word of mouth, the difference is that now we have the advantage of digital media to do it faster and make it go viral. 

As we've seen, just by analyzing some numbers you will be able to know in a simple way if your business is profitable or not. It is essential that you're always aware of these formulas because they will allow you to make decisions at the right time to correct the course of your business if necessary, such as resorting to a referral strategy.  

Let us know in the comments if you already knew about these formulas!