How To Grow Your Business: A Guide to Expanding Retail Operations Profitably

How to grow your business without losing profits | Shopify Retail blog

“Growth" is a word used in a variety of business-related contexts. Usually, you’ll see growth used as a positive term—but not all types of business growth are necessarily helpful to a retailer’s bottom line. Growth patterns that prioritize short-term gains over long-term success, for example, are neither healthy nor sustainable.

Many new business owners don’t fully understand how to run and grow a profitable retail business. In fact, only 47% of new retail businesses remain in operation following their first four years, according to the Statistic Brain Research Institute. Knowing how to balance new initiatives with a solid operational structure, and internalizing a few key concepts and principles, will allow you to grow your business strategically over time and help it become one of the ones that succeeds.

You might think that to grow your business, you need to make sure it’s always expanding. That’s not necessarily the case. Depending on your business setup and your personal goals, you might want to focus on maintaining your existing model rather than seek explosive growth.

Understanding the principles of profitable growth, no matter your individual situation, is vital to a successful retail business. Otherwise, you’ll eventually start seeing declining returns over time, as the market landscape shifts and costs rise.

As author Doug Hall says: “If your profit margins aren’t rising, chances are your company isn’t thriving.

Here, we’ll look at how to grow your business in a healthy way. We’ll start with a high-level overview of the building blocks of profitable growth. Once we define what we mean by growth, as well as a couple of other key concepts, we’ll examine some core principles: leveraging automation and scaling, identifying your company’s core value proposition, and effectively balancing operations and projects. We’ll also dive more deeply into these topics later posts in the series.

How to grow your business: What is ‘growth?’

“Business growth” refers to any pattern of consistent increases in business revenue over time. Simply put, any time your numbers are going up, your retail business is technically experiencing growth. This can happen within a short time frame, in response to a special activity or event, like a marketing campaign or public relations push. It also can occur in a more strategic ongoing way.

Strategic growth from a retail perspective primarily occurs by increasing the number of products being sold, increasing market share, or some combination of the two.

Some examples of long-term tactics used to grow a retail business include:

  • Adding a new product or product line
    • Offer additional size options for a single product. If you sell face cream, you might add a larger size option for people who want to stock up, or a sample size for customers who want to test the product before purchasing a full-size jar.
    • Add a new variation to your existing product line. Instead of selling just red shirts, you might start offering blue shirts in the same style.
    • Create a new product that fits within an existing line. If you sell scented beeswax candles, you could add a new scent option.
    • Create a new product line to complement an existing one. Start offering quirky pens to go with the quirky notebook you already sell.
    • Create a completely new product in the same vertical. Start selling casual shoes in addition to formal shoes.
    • Expand to a new vertical. Start renting out your store space as an event venue in the evenings when the shop is closed.
  • Increasing market share for existing products
    • Run a marketing campaign targeting your competitors’ customers, encouraging them to try your brand
    • Optimize your product to fill a gap your competitors’ products currently don’t
    • Expand your existing market by reaching into a new demographic

The best way to figure out what option will work best for you is through market and audience research. Look for the preferences or products that fulfill the following criteria:

  • Your customers want it
  • It currently doesn’t exist within your industry
  • It does currently exist in your industry but you can put a unique spin on it

FURTHER READING: If you need more guidance on what to sell, learn how to determine product-market fit for your retail brand.

If it fits the above requirements, the final question to ask yourself is whether the idea aligns with your existing brand and do you have the capability and desire to create it. Coming up with ideas that you don’t want to (or even can’t) execute isn’t a very effective approach, and you’ll likely waste a lot of time and energy pursuing that kind of project.

Leveraging automation and scaling to reduce costs and increase production

How to grow your business with automation | Shopify Retail blogThere’s another important point about growth strategy to understand before you start creating new products or features. Growing revenue and increasing production isn’t helpful if you’re not also finding ways to reduce costs—otherwise, your profits will begin to diminish even as your business is bringing more revenue than ever. If you’re only chasing growth metrics—increased revenue over time—you’re not seeing the full picture.

When you decide to pursue a growth activity, you need to consider how to optimize new product development and production in a way that reduces or neutralizes variable costs while simultaneously increasing output. If you don’t, the addition of new products or an increase in market share can drive up costs to a point of unsustainability, even while you’re adding revenue.

This is the thinking behind wholesale pricing models—offsetting the added costs of materials and labor by buying in bulk and operating the production process at a larger scale as output increases.

When you optimize an existing product in a way that reduces costs and/or increases production, you’re usually engaging in activities related to automation or scaling—core components of a successful, sustainable growth strategy.

Automation can sound daunting and bring to mind images of a robotic workforce. But simple automation is just anything that allows you to lower the cost of decision making. This is important, because any time you have to pause and make a decision, particularly as a senior staff member, it slows down operations and creates delays.

FURTHER READING: To help retailers better manage their time, here are five processes you can automate.

The most common way companies begin automating tasks is by documenting key criteria for simple decisions, often in the form of a checklist or instruction manual, and then either training less-expensive junior staff or contractors or finding a software tool to complete these tasks. Examples include creating customer service rep scripts (with a flowchart for how and when to issue a refund) instead of directing customer complaints to the business owner; subscribing to a software provider that manages email lists and mailouts; or hiring someone to write product descriptions for your website based on a template you provide.

Scaling allows you to increase capacity within a given process while either maintaining or reducing the variable costs of that process. For example, you might scale your sales by hiring additional floor staff for your store. As long as those new employees sell at the same rate at the same base salary, your relative costs would remain stable. Or you might start ordering your materials in bulk at a wholesale cost. As long as your other production costs don’t increase, your overall cost per unit would lower because of the discounted rate.

We’ll go into more detail about automation and scaling, and look at specific examples and tactics for applying these strategies to your business, in a later installment of this series. For now, the important thing to understand is that automation and scaling are essential tools for sustainable growth, letting you increase outputs and reduce costs at the same time. This prevents loss of profit margins, operating at a loss, or increasing waste alongside the increases in revenue and output that come with growth.

How perceived value affects growth strategies

How to grow your business and retain perceived value | Shopify Retail blog
Grow your business, but not at the cost of your perceived value. 

When you start looking at growth in terms of reducing costs, another factor emerges: understanding your business’s fundamental value proposition. It’s important to be sure you’re focused on limiting and eliminating unnecessary costs. But if your cost-reduction effort leads to removing something from your product or the production process that contributes to the value a customer sees in your product, then that perceived value will decrease and you could lose that customer’s business altogether. (When we discuss growth strategies, we always view “value” from the point of view of the customer, not the business owner.)

For example, if you sell handmade bags, you might consider using a sewing machine (or even outsourcing production to a manufacturer) to reduce your cost of labor. But if your customers are buying from you specifically because your bags are stitched by hand, you might reduce costs (and improve profit margin) in the short term, but lose money in the long run when your customers decide they’re not getting the same perceived value as before.

On the other hand, if you sell natural body wash, your customers’ perceived value likely will be in the healthy nature of the ingredients, not whether you mixed those ingredients by hand. If you outsourced production to a manufacturer that uses machinery to increase production but still follows the same formula, the value to your customers stays the same but the total cost of production would be reduced and output would be increased—a successful example of scaling.

Understanding your company’s core value is an important part of understanding which growth initiatives to focus on when you consider developing new products and/or going after increased market share. In the next article, we’ll look in more detail at how to identify your business’s value proposition and how to apply that knowledge to your growth strategies.

Is it the right time to grow? Balancing operations with projects

Retail (and in the entrepreneur world in general) places a lot of emphasis on growth for its own sake. But trying to grow your business before you’re ready could leave you with a failing company. You need to know how to recognize the right time to initiate the type of growth activities outlined above versus focusing on building a strong operational foundation for your existing products and business model.

The key is understanding the difference between operations and projects. Operations are what keep everything in your business running smoothly at their current pace—things like payroll, production, and inventory. Projects are the initiatives that contribute to profitable growth, such as new product development.

When you’re thinking about starting a new project, the first thing is to ask yourself is “why.” It’s easy to get distracted launching an exciting new concept instead of putting in the work to make sure your current activities are functioning properly. Or you might feel nervous because your business isn’t bringing in as much revenue as you’d hoped and you think adding a new product will help quickly bring in more cash. Generally, if you’re already feeling cash flow issues, a new project is more likely to drain resources than increase cash flow—at least, in its beginning stages.

Think of your business like the human body: to function properly, it requires energy in the form of food, water, and sleep. When we’re well-rested, we can learn, socialize, and work productively.

This is the physical equivalent of creating more value or, in business terms, growth. But when we feel depleted, we need to focus what energy we have on supporting essential bodily functions—breathing, keeping our heart pumping, etc.—that keep us alive.

When we have a business with a lot of energy (such as people hours and money) flowing through it, it has a strong heartbeat and plenty of resources to take on a new project. But when energy is low, through depleted staff or low cash flow, it’s important to ensure the business’s basic functions get “fed” first. That means focusing on stabilizing core operations before attempting to add additional processes through new projects. You can still do it—just like you can force yourself to get up early after a late night—but if you continue to live that way, eventually your body won’t have enough resources to continue functioning, and it will start to shut down.

So, if you’re wondering whether you’re actively ready to take on a growth project, the first question to ask yourself is, “Are my core operating processes strong and healthy?”

If the answer is yes, it’s a great time to move forward and grow your business, starting with some preliminary research to identify the best opportunities.

How to grow your business: Moving forward with profitable expansion

When growing your retail business, it’s important to scale sustainably rather than expanding for the sake of it. Prioritizing operational stability can help your retail business achieve strategic growth over time.

How has your business grown over time? Have you found it useful to implement tools like automation and scaling to reduce costs and increase outputs? We’d love to hear about your experiences in the comments.