How Do I Increase My Revenue Growth?
Revenue is critical for a successful business. As some would say, if you don’t have revenue you don’t have a business, you have a hobby. The million dollar question is, how do you grow your revenue? Many businesses, as part of their annual strategic planning, will set revenue targets, often by a percentage (e.g. 10% year over year). While this is important, targets like this can be difficult to act on if there is no direct tie to action. In other words, it is well and good that you want to increase revenues by 10%, but what will you specifically be doing tomorrow, in a week, month, each quarter, in order to achieve that goal?
Below is a helpful breakdown of the specific revenue drivers. Once you know what the drivers are, you can focus on the activities that will impact those drivers!
Breaking Down Top Line Revenue
The first step to walk through here, is to break down the composition of your top line revenue. Below is a simple income statement example that you are likely familiar with.
Now, let’s break down the top line revenue amount into the first of its key drivers.
The key drivers above are:
Total number of customers
Average dollars per sale
Average number of transactions per client
So, if you want to increase your revenue, these are specific drivers you can focus on.
From this, we can see that the top line revenue can be described mathematically as follows:
Total Revenue = (Total # Customers) x (Avg $/Sale) x (Avg # Transactions Per Customer)
Breaking Down Total Number of Customers
The total number of customers is still a fairly abstract driver, and so let’s break that one down even further.
Your total number of customers is going to equal your existing customers, referrals from existing customers, and new customers from marketing or business development activity. If you think this has some mathematical undertones to it, you are correct!
Total Number of Customers = Existing Customers + Referrals + New Customers
These amounts can be further broken down into the following specific drivers:
Existing Customers = Customers x Retention Rate
Referrals = Customers x Referral Rate
New Customers = Leads x Conversion Rate
For most of us who like these neatly placed in boxes to better understand, these customer number drivers, which make up your total number of customers, can be summarized as follows:
And so, if we were to take the simple income statement example above, where we broke down the revenue into the first 3 components, and if we were to break the total number of customers down further as we just described, we may see something like this:
From this, we can see that the 6 key drivers that impact your revenue are as follows:
1. Leads or potential customers
2. Conversion rate
3. Retention rate
4. Referral rate
5. Average dollars per sale/transaction
6. Average number of transactions per customer
These are the key drivers that you can focus on, with very specific and intentional action, in order to drive your revenue.
The Impact of Small Improvements
Now that we’ve gone through the theory, let’s let the rubber hit the pavement a bit here, and look at the impact that incremental changes to these drivers can have on your revenue. For this example, you may want to download a copy of this simple excel model here.
If we take the above expanded example income statement, and make some small improvements (5%) to each of the revenue drivers, you can see the corresponding impact that this will have to your revenue, when comparing the baseline to the adjusted figures below.
(Note: rounding of average dollars per sale, and average number of transactions per customer, yields a slightly different total revenue amount than the straight calculation from the baseline to the adjusted amount in the example above. If you would like to change this [which we totally understand!] simply adjust the spreadsheet in the link above to have 2 decimals in Column E [Adjusted]).
In looking at the example above, 5% changes to each of these drivers has resulted in an overall 15.9% increase in topline revenue!
A couple of quick caveats to consider here:
This model does not factor in that there will likely be costs associated with these drivers and related activity, and so that will most likely also have a downward impact on your Net Income. This is important to factor in when looking beyond just the impact on revenue.
Some drivers will have a greater impact than others, and so, as part of your strategic planning, you should determine how each driver impacts your specific business, in order to allocate resources accordingly. Typically, this means selecting activities that yield the greatest increase in revenue for the lost cost, though other qualitative factors, such as how long and difficult it may be to implement those activities, should also be considered.
As you can see, making small purposeful improvements to the specific drivers of your revenue can have a significant impact to your top line revenue, and your bottom line net income. So, the next time you are working on your business, and planning out the future and your target revenue, think about the 6 specific revenue drivers listed above, and the specific actions that you can take to impact each of those drivers. This puts you in the driver's seat of your revenue, rather than picking a revenue target and working hard just hoping that you will land somewhere near it. Being able to drive your revenue with intention has a truly transformative impact on your business.
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Additional Related Resources
If you found this helpful, you may be interested in our short online course on this topic, 6 Ways To Drive Your Revenue, where we dive into specific activities for each driver, and where you can download a planning tool, outlining specific actions you can take to impact each driver, and which will update the anticipated impact of each action on your forecasted income statement. For more information, click here.
If you are not quite ready to dive into an online course, you can download our free eBook Driving Your Revenue With Purpose here.
If you need help with your business planning, sign up for our free 7 day business plan email guide. Here you can download a free business plan template, and receive a short email for the next 7 days, guiding you through your business plan.
If you would like help with growing your business and mapping out a plan, please contact us here.