Not all sales growth is good – in fact, some of it is toxic to businesses and will cause business failure and loss to the bank.
Very often, a business owner will chase revenue (or turnover) because he or she sees it as a sign of success and, to be fair, when the sales graph is showing an upward trend and the money is rolling in to the bank account, it’s easy to see why.
The problem, though, is that the pursuit of revenue is at any cost – the business owner sees what’s coming in but not what’s going out, meaning that the revenue is not actually profitable.
A perfect example of this is the story from the UK about the cake manufacturer who decided to offer a deal through Groupon. The business was quite small and specialised in expensive, custom-made wedding and other celebration cakes. It also made cupcakes as a sideline, making about 100 cupcakes a month. Then the owner decided to promote the cupcake side of the business and that’s when it all went wrong.
The business offered a large price reduction through Groupon but was overrun when 8,500 people signed up for it. The business went from making 100 cupcakes a month to making 102,000 – overnight!
Unfortunately, the large price reduction resulted in a loss of GBP2.50 per order but they also had to bring in 25 temporary workers at a cost of GBP12,500 to meet the demand. The extra costs involved wiped out the business’ entire year’s profits.
The owner said “it’s without doubt the worst business decision I’ve made. It’s been an absolute nightmare”.
So, watch out if your business customers plan sudden sales growth – it can easily lead to disaster.