I am in a series discussing the 5 steps to take control of your business finances. To find out more check out Step 1: Develop a Positive Financial Mindset
Step 2: Implement a Revenue Plan
Whether you are just starting out or been in business a while, we all want revenue. We want consistently increasing revenue from existing and new customers.
Here are some quotes about the importance of Sales & Revenue:
“Sales Cures All. Know how your company will make money and how you will actually make sales.” -Mark Cuban
“You must set targets that are 10 times what you think you want and then do 10 times what you think it will take to accomplish those targets. Massive thought must be followed by massive actions. – Grant Cardone in “The 10X Rule“.
“You can’t grow out of your profit problem. You need to fix profit first, then grow. You must figure out the things that make a profit and dump the things that don’t.” – Mike Michalowicz in Profit First“
Now you may be thinking that these quotes are conflicting. While Mark Cuban says that “sales cures all”, Mike Michalowicz says “You can’t grow out of your profit problem.” Finally, in order to prevent ever having a profit problem, Grant Cardone recommends setting astronomically high goals more than you can imagine and work very hard to meet these goals.
I would not specifically argue with any of these 3 statements but you can’t take any of them by themselves. The best way to explain this is with a story.
A Revenue Story
A few years ago, the company I was working at had a revenue shortage. We were $500,000 below the revenue goal due to some unexpected client losses and delays in new business development. We had a company meeting with 50 employees and told them of the shortfall. During the meeting, we brainstormed different revenue streams and client opportunities to close the gap. If each person generated $10,000 more revenue from existing clients, we would meet our goal. Then, we assessed our revenue services by each client and came up with a list of all the opportunities that we could pitch to the clients. The innovative ideas made clients more attached to our services. We met our goal for the year and set ourselves for a successful following year because of this revenue exercise.
In summary, revenue did cure our problem. Even better, the revenue increases did not require the need for more expense. In reality, we broke the revenue down in chunks that seemed manageable by each employee. A few months later in a board meeting, we celebrated that even though we lost 3 out of top 5 clients, we still hit our revenue goals. We weren’t practicing the 10x rule but we were aggressively setting sales goals and putting forth the action to meet those goals.
So, let’s talk about some practical ways to do this.
New Revenue for Service Companies – High Annual Value
Examples of these industries include marketing agencies, consultants, attorneys, and architects.
For Service-Oriented companies that rely on clients for business, it is important to monitor and measure a pipeline of new prospects. Make a list of all your prospects and assign an annual value and probability percentage to close any new business. Do this for a new prospect or new service from existing customers. Some of the highest revenue growth comes from existing clients that use multiple services.
This method works best if the annual value by the client is high and billed on a monthly basis.
New Revenue for Low Order Value Businesses
A low-order value business is typically selling a product to a customer at a price and margin that would require hundreds or thousands of customers or transactions for the business to be sustainable. Examples would include retailers, restaurant owners, and booksellers.
In this case, it is best to list all the products with quantity and price to develop a forecast into the future. Use historical trends and understand your capacity to produce or distribute the products.
From a marketing standpoint, understand your customer and where they are coming from. A great example is in the restaurant industry. Jon Taffer spoke on the Entreleadership podcast and he states that customers that visit your restaurant three times, the statistical likelihood of a 4th visit is over 70%. Based on this information, it is important to know your customer base, how much they spend, and how often they visit. The goal would be to figure out how to get them there for 3 visits.
There is so much to discuss in regards to revenue forecasting. Sales and marketing are very interrelated to not only see the trend but also to adjust your strategy so that revenue will continue to increase at a sustainable and exciting rate.
For more about revenue, check out “It All Starts with Revenue“.