Posted: December 13, 2009
The top four drivers of revenue
Bill Howe shows us howBy Theresa M. Szczurek
What is the most common challenge companies are encountering these days?
Many CEOs tell me their biggest pain point this year is weak revenues. Due to many factors, sales are down. CEOs and executive teams are struggling to cut costs and maintain profitability. Why not increase the top line, revenues, instead? Easier said than done.
How Do You Increase Revenues?
Good question. The answer comes from understanding the four fundamental drivers of revenue. Bill Howe, CEO of the Growth Engine Group (www.GrowthEngineGroup.com) shared the following insightful formula with me and other Gazelle business coaches at the Growth Summit in Dallas.
Revenue = C x F x T x P
Pause, experienced business people. Ask yourself - what are these variables? Given that revenue is the engine that grows companies, we all you should know the drivers. Do you know? If not, you might consider working with a good business coach such as Howe, who can help you leverage these factors.
The "C" stands for ‘number of customers.' Customers are the most important people in driving your business. Without them, your revenue comes to a grinding halt. Ask yourself some questions on what you are doing to positively impact this factor:
• What are you doing to keep your customers happy and loyal? You do have an ongoing customer relationship program, right? What is the level of customer satisfaction and loyalty? See www.TMSworld.com/customers.html for more information on this.
• What are you doing to attract new customers? You do have a sales or business development effort, right? How effective is it? What are you doing to continually working to improve your efforts? See www.TMSworld.com/sales.html for some suggestions.
The "T" stands for ‘average transaction size.' The larger the quantity a customer buys, the higher your revenues. What are you doing to stimulate larger order sizes?
The "P" stands for ‘price of your products or services.' Often firms believe that in challenging times, the only alternative is lowering price. Yet if you increase the perceived value of what customers are receiving in exchange for the price they pay, you can maintain and may even be able to increase price.
The "F" stands for ‘frequency of purchase.' What can you do to encourage customers to buy more often? For example, find a powerful new application of your product or service to accelerate the use-up rate. The most famous example here is the break-out success that Arm and Hammer achieved by touting their baking soda as the best way to absorb rotten refrigerator odors.
Your Strategy to Increase Revenues
What are you doing to leverage all of these revenue drivers? This is the perfect time to review your strategic plans, conduct a brainstorming session, and get creative in how to impact these variables. Some parting advice: Most executives think they know how to facilitate brainstorming sessions or lead a discussion on the little-known inner workings of marketing and sales. In working with dozens and dozens of teams across many industries for decades, it is the rare exception.
Seek expert help. It will pay for itself over and over again.
Theresa M. Szczurek, Ph.D., co-founder and CEO of Radish Systems, is a serial technology entrepreneur. The story of her last start-up, which sold for more than $40 million in less than six years, is included, along with her strategies for success, in the Amazon-bestseller Pursuit of Passionate Purpose: Success Strategies for a Rewarding Personal and Business Life. www.RadishSystems.com, www.radishsprouts.typepad.com and @TheresaSzczurek on twitter.