We all know that in order to make money in your business, you need to generate revenue. But how well do you know what your revenue drivers are?
You produce revenue through your usual business activity, by making sales, getting your invoices paid, or taking payments customers. So, the better you are at selling your products or services and bringing money into your business, the higher your revenue levels will be.
But what actually drives these revenue levels? And how do you get in control of these drivers?
Understanding your revenue drivers is more crucial than ever
In a world of constant change, you face multiple challenges, such as a global recession, rapidly changing technology, markets and buying expectations. Not only that, we also have a ‘new normal’ when it comes to trading. The better you can understand the nature of your revenue and its drivers, the more you can adapt and control your ability to generate this income.
Knowing where your income is coming from helps your strategic thinking and your decision making. It allows you to be confident that you are focusing on the business areas that deliver maximum revenue. In Why You Need to Understand your Financal Reports we talk about the story these reports tells about your business. Understanding both your revenue drivers and financial reports will help you make sound business decisions.
Important areas to consider are:
1. Revenue channels
Where does your revenue actually come from? Do you create income from online sales and e-commerce? Through retail sales in bricks and mortar stores? Through wholesale to other businesses? You may focus on one of these channels, or you could use a mixture of two, three or more.
2. Revenue streams
Your total revenue will consist of a number of different streams. For example, if you are a cafe owner, your revenue strams may include coffee sales, cake and pastry sales and lunch sales. Knowing which revenue streams are most productive and what return they are delivering allows you to make decisions. If 80% of your incoe comes from 20% of your products, perhaps you need to tighten up your product range and ditch some of the poor sellers. If you are selling more services to one particular industry, you may want to focus marketing in this niche, or downscale your sales activity in less profitable services.
3. Product or service split
Do you know which products or services are the most profitable in your business? Which products or services have ben resilient or adaptable to market changes? Which products or services have been giving you revenue stability? The more you can dive into your metrics and find the most productive and adaptable products and services, the greater your ability to provide constant and evolving revenue for your business.
4. Value vs. volume
Is your revenue based on selling a high volume at low margin, or low volume at high margin? Can you move your margin down to create a more attractive price point and more value for customers? Are there ways to push volume up, shifting more units and boosting total revenue? By diversifying into new channels or new products/services, you can aim to balance value and volume to create new sales and higher revenue levels.
Once you’ve identified and measured your revenue drivers, consider developing some of these Strategies to Improve Profit.
Talk to us about exploring your revenue drivers
If you want to boost revenue and increase your overall profitability, come and talk to us. We’ll review the numbers in your business, help you to understand your revenue drivers and will give you proactive advice on enhancing your total revenue as a company.
Get in touch to kickstart your revenue generation.