A Guide To What Is Organic Business Growth And How To Achieve It

Examples of this technology include artificial intelligence (AI) powered virtual assistants, customer relationship management (CRM) software, sales performance management software, and configure-price-quote software (CPQ). For example, if Company ABC is growing its sales at a 3% annually, and company Z is growing sales at 14%, investors might assume that the latter is a better investment opportunity since it could offer higher rate of return. However, if the company managed to achieve this growth rate via an acquisition of a competitor, it might turn out that its sales were declining. In addition, its sales growth has been achieved by taking on higher risk, while ABC was able to grow organically, making no acquisitions and maintaining a healthy balance sheets without taking additional debt.

• Inorganic growth, by comparison, is accomplished by using resources or growth opportunities outside of a company’s own means.
• Some of these strategies include investing in high-return activities, tracking key performance indicators, and leveraging digital marketing to reach a wider audience and improve customer engagement.
• However, reliance on M&A for growth is easier said than done because of the difficulty to realize expected synergies, particularly revenue synergies.

Since organic growth relies on a company’s existing resources, expertise, and recognizable brand, it’s considered a cost-efficient and sustainable approach. This may be accomplished with more extensive marketing, essentially by selling more into existing sales regions. It may mean that existing customers buy in greater see whats new with estimates and invoices in quickbooks online volume, or that new customers are found within existing sales regions. Margins can decline when pursuing this strategy, as there may be additional marketing or expansion costs. For example, selling internationally may mean that a business must sell through distributors, who will want a substantial price discount.

The Advantages of Organic Growth

CRM software helps to streamline the process of managing customer relationships by providing an online database for storing contact information and tracking customer interactions across multiple channels. CRM systems also allow businesses to identify which messaging strategies are effective at building relationships with customers or leads to increase conversions. Without a well-thought-out and optimized sales process, businesses can struggle to generate the growth they need to succeed. Improving sales processes is not an easy task, but there are several strategies organizations can apply to help increase the efficiency and effectiveness of their sales operations. The strategies utilized rely on a company’s internal resources to improve its revenue generation and output, i.e. the total number of transactions, customer acquisitions, and limited customer attrition. One option is to increase unit prices, so that customers are paying more for the same unit volume of sales.

• Planning and adapting operations to the increased scale of organic growth is essential to ensure sustainability.
• Since organic sales are those generated from internal processes, an organic growth strategy should focus on increasing brand awareness and market share, raising prices, improving sales productivity, and developing customer loyalty.
• For example, if the Wall Street Journal references you and your website as an expert in travel, that is a sign to Google that your website has authority in the travel niche.

Digital marketing refers to the utilization of digital channels, including websites, social media, search engines, and email, to advertise products and services. It’s important to note, however, that organic growth is not without its challenges. When devising an organic growth strategy, businesses must weigh the advantages and disadvantages to determine the best approach for their specific situation. By focusing on internal growth and leveraging existing resources effectively, companies can drive organic growth and achieve long-term success. Organic growth is the growth a company achieves by increasing output and enhancing sales internally. This does not include profits or growth attributable to mergers and acquisitions but rather an increase in sales and expansion through the company’s own resources.

Investing in High-Return Activities

For instance, educational businesses provide subscription services to academic websites that provide students with enrichment activities. By reporting the organic growth without the distortion of revenue from acquisitions, investors can determine whether the company’s product lines saw sales growth, which include Pepsi beverages, Frito-Lay, and Quaker Foods. Usually, a business turns to inorganic growth strategies (M&A) once its organic growth opportunities have been depleted.

What is Organic Sales?

However, the integration process of two companies, following an acquisition, can be time-consuming. Also, acquisitions can negatively impact organic sales if the company is in a state of flux due to employee layoffs or consolidation of departments. Organic sales are the product of the internal processes of a company and are generated solely within the firm. Organic sales provides management and investors with the level of revenue that was generated from the sale of a company’s products and services.

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They opened a second location selling the same menu of items in the second year. The two locations’ combined annual revenue for year two was $800,000, showing a $300,000 increase in organic revenue. Let’s say the soft drink company above is losing its market share in the beverage sector because customers are gravitating to flavored iced teas. The CEO of the soft drink company could decide to launch a new product line but instead directs the company to spend $1 billion to acquire the world’s largest iced tea manufacturer. It’s important for investors to be able to separate organic sales from sales that came from an external source. Organic sales figures will show how much revenue the company is generating from its core operations from period to period.

Inorganic growth almost always relies on securing outside capital or resources but may enable more rapid expansion. Organic growth, on the other hand, relies on intrinsic resources and skills to fuel a slower, more natural growth. Most companies choose to focus on one of the core strategies mentioned above to fuel organic growth, as pursuing more than one can make it less clear what actions within a strategy are working and which aren’t. Also, as growth typically requires significant expenditures, it may be difficult for a company to fund more than one growth strategy at a time.

Optimization of a business focuses on continuing to improve a business’s processes to reduce costs and set appropriate pricing strategies for products or services. The increase in a company’s internally generated sales is known as organic growth. The idea is used to distinguish between sales coming from operations that are already in existence and those that were acquired during the measurement period. In addition to addressing the basic levers of price and volume — and, of course, adding tiered products and services — improving margins is also important when it comes to increasing organic growth. In other words, if you sell the same amount of product at the same price but you spend less money to produce that product, that differential in increased margin yields organic growth. By tiering its products in this way, Mercedes ensures it has something for as many prospective customers as possible.