How to talk about revenue growth

201601-revenue_growthIf you follow the business literature, you’ve heard a lot about revenue growth, also known as “top line” growth. You might also have heard a fair bit about earnings growth, or “bottom line” growth.

Let’s focus on revenue for now. I’ll write about earnings, and the cost bridge from revenue to earnings, later.

Okay, revenue. What are the three ways to grow revenue?

  1. Increased price. You could sell the same goods and services you’re selling now, in the same quantities, but at higher prices. If all else is held equal, higher prices equals higher revenue.
  2. Increased volume. You could sell the same goods and services you’re selling now, at the same prices, but in larger volumes or quantities. If all else is held equal, larger sales volumes equals larger revenue.
  3. Different mix. You could sell different goods and services than you’re selling today. As long as the prices and volumes work out in your favor, you can generate more revenue by selling different stuff.

Talking about revenue growth at a high level is boring. To make it interesting, we need to know how we want to achieve revenue growth. Or, if we’re studying historical performance, we’d like to learn the details of our past revenue growth.

If we know how we want to grow revenue, we know what kinds of things we need to do differently:

  1. If we’re focused on price, we assume that our goods and services are currently priced beneath what the market will bear. Maybe we’re not positioning our offering in the right way. Maybe we’re not targeting the right customers. Plenty of factors could explain why we could successfully charge higher prices tomorrow than we’re charging today.
  2. If we’re focused on volume, we assume we’re not reaching as many customers as we otherwise could. Maybe we’re ignoring part of the market. Maybe we’re not upselling to the customers we already have. When we talk about increased volume, we need to ensure we have the capacity to supply more goods and services to the market in the first place.
  3. If we’re focused on mix, we assume we can profitably deliver different goods and services to the market than we’re delivering today. Maybe we’re working on new products and services. Maybe we have existing products and services we aren’t selling, for whatever reason. In this case, we’ll be meeting different needs than we have in the past.

As you can see, revenue growth isn’t rocket science. Like a lot of business, it’s straight-forward, but you have to think clearly.

While revenue growth is an easy topic to discuss, it’s often difficult to realize. Almost every business on the face of the planet is trying to grow revenue. Assume all your competitors are in the same boat.

If you can match a preferred path to revenue growth with your company’s strategies and capabilities, you’ll give yourself the best chance to succeed.

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