Increasing the variety of products or services you offer could boost your customers and revenues, or it could spread your credibility thin. Determine if your business would benefit from increasing or limiting the variety of its products or services.
By Chad Preston
Sticking to one offered service or product, and doing it well, is a smart and highly profitable move for some small businesses. But for others, offering a very limited number of products and services is a risky proposition. Many find that they need to adjust to and evolve with the marketplace by adding or decreasing services as they go along. It is an ongoing process of weighing the benefits of increased revenues against the possibility that they will spread their resources—and therefore, their credibility—too thin.
When It’s a Good Idea to Offer More
Andy Birol, author of The Five Catalysts of Seven Figure Growth, and owner of Birol Growth Consulting in Solon, Ohio, says there are five things to consider before introducing more products to your customer base:
- Understand Your Best and Highest Use—Birol says that a firm needs to really understand what its Best and Highest Use® is and be able to leverage that. Consider what your business’s staff likes to do, what your company is good at doing and what customers value it for doing, he says.
- Look For New Available Channels—A good time to increase product offerings is when company leaders recognize that they have a different media or different channel where they can package their products or services in a new format or they are delivered through a different medium, he says. New media and channels include anything from starting to advertise in the local paper, launching an e-newsletter program, creating or updating your Web site or starting a direct marketing campaign.
- Look For Untapped Markets—Adding a new product or service is a good idea if it means tapping into new customer segments or referral sources, Birol says.
- Don’t Undermine Successful Offerings—“One of the things you really have to be careful about, especially if you’re considering new offerings as a way to improve your financial security, is not to eat into your existing or more profitable services,” he says.
- Recognize Your Economies of Distribution, Marketing and Production—It’s important to distinguish what your overall economies of distribution are: marketing or production? Birol says. “There have been a lot of retail companies that have really dabbled in the notion of home delivery, and while that’s a wonderful service and one where you can get more margins and better pricing for offering such a customized service, you really have to make sure that your economies of distribution are going to work for you,” he says. For example: If you use some of your grocery store checkout clerks as delivery staff, your in-store service might deteriorate.
Sometimes It’s Better to Decrease Your Offerings.
It might seem obvious that offering more services would bring in more revenue, but if you spread your resources and expertise too thin, it can have the reverse effect and damage your credibility. When people advertise 15 services instead of three, they think they’re going to get more business and that’s not true, says Don Debelak, an Entrepreneur magazine columnist and author of Business Models Made Easy. “That’s a false assumption—people think they get more financial security but they really don’t because what they’re doing is losing their very best customers who really need what they have to offer,” he says. “No one can be an expert in 15 things.”
“They want specialized service,” Debelak says. “When I ask people why they buy my book, they look in the index and see that it covers the exact topic they want. People just don’t feel you can be an expert in everything; they’d much rather have a person who was an expert in the one or two things they really need. When you promote yourself to too many areas as being an expert in everything, people just think you’re an expert at nothing, and it really cuts your credibility and your ability to get business,” Debelak says.
Practical and operational issues must be considered as well. Are your business’s infrastructure and processes able to handle the workload generated by new offerings? Small businesses are chronically balancing the amount of resources and the amount of staffing they have against customer demand, particularly if it is unpredictable, Birol says. If you’re watching the costs of doing your business or the economies of scale diminishing, it isn’t a good time to offer a new product, he says. “One of the things that happens when you start to offer more products or more services is often your buying power with vendors can change because now you’re asking for things in different versions, you’re ordering less (which might impact how well you’re actually selling things on the floor) or may begin to impact your ability to meet expectations set with customers.”
According to Birol, other warning signs include: your business is not staying profitable; your costs are going up; your margins are changing, or there is a lot more overhead. If you aren’t adding more services to your repertoire, and you’re already seeing these indicators, it might be time to decrease the services you provide.
“You’re always going to lose some business, but if you keep repeatedly losing business I think that’s a sign that you’re just offering too many services,” Debelak says.
“The most important reason to really develop new products and new services is it’s a small business’s ideal opportunity to be able to gauge how the market is reacting, changing and how responsive it will be to the business,” Birol says. “If you don’t develop anything new, you run the risk of being trumped by emerging or un-thought-of competitors. It’s a wonderful way of testing demand, staying current, staying fresh and really making sure that you have your finger on the pulse of what your customers want.”