I can’t emphasis enough that not all sales growth is good. In fact, some of it is toxic to businesses and can cause business failure.
The story of a cake manufacturer in the UK that decided to offer a deal through Groupon (this was a company that enabled businesses to offer discount coupons to a mass market) is a great example of how that happens. 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.
Hoe did sales growth lead to its failure?
The business offered a large price reduction through Groupon but it was completely overrun when 8,500 people signed up for the deal. 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. On top of that the business 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, in this case, the business was totally unprepared for the growth in demand. Usually, when an opportunity to grow sales arises, business owners see the huge revenue on offer. But they completely under-estimate the costs attached and whether the business’ capacity can handle the sudden spike in demand.
If your business customers tell you they plan sudden sales growth, watch out! It can easily lead to disaster.
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