In a growing business (business growth), as a business grows it gains two major advantages over its smaller rivals. Large firms have more influence over market price. They’re big enough to be price setters.
Large firms also often enjoy economies of scale. This means that a business has lower unit costs because of its large size. They can buy raw materials cheaply in bulk and also spread the high cost of marketing campaigns and overheads across larger sales.
For example, if a large firm can produce a given type of sunglasses for £20 while it costs its smaller rival an average of £30, then the larger firm has a £10 per unit cost advantage. Larger firms can charge lower prices or enjoy a higher profit margin.
When you achieve a certain level of success as a company leader, you may start to think about the benefits of expanding into new markets. The expansion of business is something all good entrepreneurs aspire to, and early success often fuels dreams of growth.
But the expansion of business isn’t something to take on without a careful understanding of the pitfalls of growing too fast. However, despite some of the drawbacks, there are specific advantages of business growth that can help you make the right decision for your company.
Economies of scale are a major source of competitive advantage for large firms.
Methods of Business Expansion
A business can grow in size through:
- Internal (organic) growth – the business grows by hiring more staff and equipment to increase its output.
- External growth – where a business merges with or takes over another organisation. Combining two firms increases the scale of operation.
- Franchising – where a business leases its idea to franchisees. This allows new branches to open across the country and internationally.
Benefits of a Growing Business (Business Growth)
Possibly the greatest competitive advantage of business growth is the ability to capitalise on the economies of scale. As you increase your production output, you can bring down costs per unit and achieve savings across:
- purchasing – by getting discounts for buying in bulk
- marketing – by spreading the cost of promotion over larger sales
- overheads – by spreading the staff or administrative costs across a greater output
Business growth or growing business can also enable you to:
- increase your resources and stock
- generate more sales and profits
- reach new customers or markets
- put more money back into your business
- influence market price
- reduce external risks (eg from competition, market or technology changes)
Expansion can also give an impression of greater financial viability of the business. Financial institutions often see larger businesses as more credible and stable than their smaller competitors.
Diversifying into new markets, products and services means that if one part of your business is exposed to market changes, you can rely on other income streams.
Growing Business works with the following:
1) Growing Business Attracts New Customers
One of the best reasons for expansion of business or growing business is to reach out to a new group of customers. Although you already have a well-mined customer base, there is always the opportunity to add new customers when you expand, especially if that expansion of business involves the introduction of new products and services.
For example, let’s say you own a comic book shop that has gained success selling all types of graphic novels and monthly-serialized comic books. You decide to expand by offering a space within your store where noted artists will display their original works for customers to buy.
You can now tap into a new market of customers who are primarily interested in artwork rather than just in reading comics. You retain your old customer base, but now you are also appealing to a new set of buyers who are art collectors.
2) Economies of Scale
Economies of scale are another of the benefits of expanding into new markets or growing business because when your business grows, vendors and suppliers are much more incentivized to provide you with discounts because you’re ordering in larger quantities.
In most instances, the more you order from your suppliers the bigger the discount. That means that you’ll be paying less to get more of the supplies and products you need from your suppliers, which also means more of your money can go into building your company to become even more profitable.
3) Growing Business Establishes Multiple Revenue Streams
One of the greatest advantages of business growth or growing business is the fact that expansion typically gives you the opportunity to offer a diverse range of products and services.
In doing so, you are able to diversify your revenue stream, which means that you aren’t exclusively reliant on selling one core product or service. For example, let’s say you own a bakery and decide that you want to expand by adding a small restaurant on premises that offers breakfast and lunch.
You are now inoculating your business from a downward trend in bakery sales by offsetting those losses with the restaurant earnings, helping to ensure that your business will survive if the demand for baked goods decreases.
Read Also: 4 Factors that Promotes your Business Growth
4) Growing Business Offers Branding Opportunities
The advantages of business growth or growing business aren’t just limited to revenue diversification because another of the benefits of expanding into new markets is the opportunity for greater brand recognition.
Branding is all about making sure that your targeted audience associates specific qualities, ideas, and characteristics with your product or service. Branding is largely achieved through outreach marketing that focuses on social media channels where your audience gathers.
When you expand your business, you also expand the possibilities of reaching a wider audience by implementing marketing strategies that help grow your company’s awareness among prospective and existing customers.
Bigger companies have the advantage in branding because they are able to leverage their resources towards advertising and marketing in very specific ways.
The adage that “bigger is better” is true as it relates to branding simply because audiences are more likely to pay attention to larger companies when they consider what to buy.
That doesn’t necessarily mean that your business has to be a huge corporation, but becoming a bigger fish in the small pond of your industry will provide you with greater branding opportunities.
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