For a business to survive in the long run, growth is essential. This helps the company fund investments, attract more talent, and acquire more assets.
However, the purpose of a business’s growth isn’t very obvious. Many people will be quick to give pat answers, such as – to make more money, “to become bigger because bigger is better,” and so on.
The truth is, the purpose of growth in companies is beyond these. A key purpose of growth for most companies is to offer better returns for shareholders.
What is the importance of business growth for a company? This article explores these questions with clear answers.
What is Business Growth?
For a business to grow, it means it’s expanding in different ways. There are several factors and data points that are used to determine if a company is growing or not. They include profits, number of customers, company value, sales, number of employees, and revenue.
A company is considered to be growing if it uses some of these metrics. A business can experience growth in revenue without increasing its customer base. It simply means the same customers are buying more.
One aspect of the metrics may flourish while others decrease. This doesn’t mean the company won’t experience overall growth.
Consequently, defining what growth means can become a bit difficult. The best way is to examine the goals of your company. This helps you prioritize which growth metrics to pay more attention to.
A company that is just starting may need to prioritize growing its number of customers, regardless of how little the profit may look in the early stages of growth. Also, established companies will gain more if sales and revenue increase steadily to cover costs.
5 Reasons Why Business Growth is Important
There are several reasons why a business/company needs growth. Below are a few of them.
Meeting the demands of your business is vital. It simply keeps you in business for a long time. Soon, your existing customers will ask for more products that meet their needs. If you don’t offer them yet, then your competitors will. You don’t want to leave more cash on the table. Growing your line of business is therefore needed.
The same goes for services. You provide more services your existing customers keep requesting. Your business will need expansion at this stage.
You can reach more customers if you expand your business, diving into new markets with new demands. Your existing products or services can also be extended to new customers, especially as the need increases in new markets. The higher the demand, the greater the need to expand.
- Increased profit
A company becomes more profitable when it expands. More sales mean more profits. Improved output (services provided and goods produced) will always lead to business growth. There will be more sales when the output is sold. And when sales increase, sales revenue will also increase (when sales prices don’t change).
Keeping costs under control is a good way to improve profit when expanding your business. Maintain the costs at what they were before expanding. You can also increase your profits by maintaining cost growth. It should be less than the growth in sales revenue. As your business grows, profits will also increase.
Growth is essential for the survival of businesses, especially those that are just starting. If your company is a startup, it needs to increase the number of customers to stay in business. Over time, expanding your product line will be needed. To compete with your growing rivals, offer better products or services. The need to outgrow your competitors comes in.
- Enjoy government policies
There are several incentives the government offers businesses to grow. The government offers tax holidays, exemptions from the payment of customs duty, and subsidies. Also in places considered backward, the government permits setting up business units. Several benefits are provided, including financial assistance. Using different kinds of favorable government policies helps with business growth. You will be exposed to new customers.
- Increase in market share
Business growth helps you enjoy more market share. Increased market share gives your company more market power. You also gain a higher profile. It means you can command higher prices for your services or products. That’s more sales revenue as well as a higher profile, while costs remain almost constant.
Improved market share also allows your company to enjoy better bargaining power when dealing with suppliers. You can negotiate lower prices when you need raw materials. This lowers your cost of production.
Growth is essential for any business to survive. Sales and revenue need to be steady. When your business expands, it enjoys the better market share that comes with it. Finally, increased market share makes it easier for your company to successfully launch new products. You can also grow your business with Pareto as a partner.