Roughly half of all new businesses fail to survive the first five years. Many don’t even last the first 18 months. There are plenty of reasons that businesses fail but a recurring theme is a lack of a clear growth strategy. A growth strategy is more that a vision; it’s a concrete plan to grow in a specific direction. Here are the 7 key components that form the basis of any business’ growth strategy.
Hire The Right Talent
Define Value Proposition
Segment Potential Customers
Identify Key Success Metrics
- Customer Acquisition Cost (CAC): The cost of acquiring each new customer. The simplest way to calculate CAC is to take marketing costs for a specific period and divide by the number of customers gained during that period. Ideally your CAC will decline over time.
- Average Revenue Per User (ARPU): This metric measures the average customer’s contribution to your revenue. Averages can be tricky but rising ARPU can suggest increased sales per customer or greater pricing power. Gradually declining ARPU is a red flag that suggests customers are rejecting your product.
- Customer Retention Rate (Churn): Churn measures the percentage of your customer base you lose in a given period of time. Ideally your churn will stay low and consistent quarter over quarter (or whatever interval makes sense). Rising churn suggests that customers are fleeing to your competitors.
- Gross Margins: This is one of the simplest ways of measuring the health of a business. Gross margins are the difference between your revenue and the cost of goods sold. Strong gross margins suggest you have a product customers want and you can manufacture it as a reasonable cost. Gross margins are separate from operating margins, which also include overhead.