Revenue and margin growth are the two key value drivers for improving your business performance. Be careful though, as these two do not paint the whole picture and can often be misleading. Instead of taking revenue and margin growth at surface value, it’s best to look under the hood to see what’s driving them. Identifying and managing the underlying sub-value drivers will enable you to drive sustainable revenue and margin growth and finally, improve your business performance.
How to drive revenue growth?
Depending on the type of your business and your business model, truly understanding revenue growth isn’t as simple as measuring your sales or number of new customers month on month or quarter on quarter, however. There are numerous potential sub-value drivers behind your revenue growth, and looking at each of these sub-value drivers in closer detail can give you a more accurate picture of how well or otherwise your company is performing. Looking at each sub-value driver individually will tell you which departments are performing well, and where there is room for improvement.
There are various sub-value drivers that are behind your revenue growth, some of the most common are:
- Product portfolio: Competitive advantage and add complementary products and / or services
- Market: Market segmentation and invigorate your sales channels
- Pricing: Hone your pricing strategy (price segmentation, discounts, rebates, price increases, etc.)
- Marketing: Value proposition, campaigns, lead generation, free trials, etc.
- Customers: Know your customers, relationship management, customer retention, upselling and cross-selling, reach out to old contacts, etc.
- Sales management: Know your sales velocity, sales funnel and conversion rates, etc.
- Sales team: Organizational structure, training, performance management, etc.
Achieving revenue growth also means understanding what negatively impacts revenue growth or even worse, can cause your revenue to decrease. Here’s a look at some of the most common:
- Customer churn: Customers that stopped buying your company’s product or using your service during a certain time frame
- Price dilution: Key customer contract renewals are often accompanied by price reductions
- Competition: Understand the dynamics and trends of your competitive landscape (new entrants, price, USP’s, changes in product and service features, etc.)
How to drive margin growth?
Margin growth is an easy concept; At a constant price (and revenue), reducing your cost of operations will result into margin growth.
As we already wrote earlier in our blogs from 26 February and 11 November 2020, reducing cost of operations shouldn’t be solely a cost-cutting exercise, as cost cutting won’t create long-term revenue growth. In addition, too many companies seek to reduce cost of operations by focusing on individual parts, tasks and suppliers. We are strong believers of taking an integrated approach and of looking at all cost elements of your operations in combination with all cost-drivers of your company. Some of the most common are:
- Organizational structure: Evaluate the effectiveness and re-allocate tasks and responsibilities
- Business processes: Improve, optimize and automate your business processes and eliminate those activities that have no added value
- Productivity: Manage and improve productivities of your business processes through applying continuous improvement
- Outsourcing: Evaluate your make or buy decisions and when appropriate, divest noncore assets
- Procurement: Asses your (high-spend) supplier contracts
The importance of management information
A management information system, which is not just software, provides insights that allow you to manage and improve your revenue and margin growth. An effective management information system identifies and collect data on all the important metrics of the operations of your company and its key value drivers.
The purpose of the management information system is to set performance standards, including targets, which allows you and your managers to timely manage deviations by taking corrective actions. It also allows you to further improve by setting new targets in case targets are consistently achieved.
Curious as to what we can do to support you with improving your business performance? Please consult our website or contact us directly.