So here comes another annual meeting where the different departments present reports updating their progress at the close of the financial year. It’s expected that every department has contributed in some significant way to the revenue generated for that year. So… how has your department contributed? Has there been any revenue growth? And what can this information facilitate moving forward? Bet you’re breathing easy if you have the asset of a B2B trump card!
What Is Revenue Growth?
Revenue growth refers to the increases (or decreases) which have occurred within a company, over the course of one period to the next. This is usually illustrated as a percentage. Thus making it convenient to use, to identify trends and patterns in the business.
Types Of Revenue Growth
- Sustainable Revenue Growth
Sustainable revenue growth is geared at ensuring some sort of balance is obtained so that your business can thrive. In order words, your business needs to ensure it can support the revenue which it earns. If the business can not meet the demands of the client, well… Therefore, sustainable revenue growth informs of the margins at which revenue can grow.
Let’s say your business grows faster than your revenue growth. It shall consume the resources of your balance sheet faster than it can replenish it. This, in turn, would evaporate the resources required to finance its growth and all other current operations. The result – BROKE!
Fortunately, if your business revenue grows slower than its sustainable revenue limit, that’s a plus. Your business will then be able to build up its finances which will, in turn, ensure that resources remain available. Soon, your business can easily finance its operations without acquiring additional debt or equity.
- Organic Revenue Growth
Organic revenue growth refers to what is done within your business to assist the growth of your business. This does not include mergers or acquisitions of businesses. Organic growth is concerned with the growth which comes about as a direct result of sales of the existing product for the period. This type of growth is usually analyzed quarterly or yearly to properly assess organic revenue growth. Organic revenue growth is achieved when sales promote a drive-in output.
In order to be successful at organic revenue growth, promotions, customer service, and the product line need to be at optimal levels. Investors, shareholders, and potential investors are interested in knowing that your business is bringing in returns on their investment. That means your business must be able to bring in more profit than it did during the prior period of review.
- Inorganic Revenue Growth
The acquisition of companies, take-overs, and mergers are key aspects of inorganic revenue growth. This type of growth is concerned with making purchases or partnerships which will continue to bring growth to your business.
How To Calculate Revenue Growth?
Revenue Growth Formula
Let’s say for instance you made $56,000 in revenue in 2017 and $70,000 in 2018, there is cause for some celebration. In order to calculate the revenue growth, a few steps will achieve your desired figures. The formula for calculating your revenue growth is simple:
(Current Year Revenue – Prior Year Revenue) Prior Year Revenue
When applied, it would look something like this:
$70,000 – $56,000 = $14000
= 0.25 x 100%
In this instance, your business has experienced a 25% growth in revenue for the period 2017 to 2018.
Revenue Growth Management
It is important to analyze the information gleaned from calculating your revenue growth to maximize your business’ revenue growth. Doing so will allow you to make predictions based on your consumers’ habits which will foster optimized pricing and availability of your product. Simply put revenue growth management allows your business to efficiently market and sell your products to the right customers at the most promising of times.
However, to achieve this, your business must take time to perceive what the customers value and provide that service or product at a price that the customer will find irresistible. Therefore as a provider, you must be willing to adjust the prices of your product to suit the needs of your customer but also draw in increased revenue for your business.
As a result, a disciplined pricing strategy is often the most critical in revenue growth management. Consider also, promotions as a means of attracting customers. This is helpful, especially if your inventory is up to date and you want to move various products in large volumes. Discounts also attract and generate interest in products which in turn help grow revenue for your business.
Revenue Growth Rate
The revenue growth rate is a measure of the percentage increase over a given period, for example, month to month. This sort of measure is necessary to assess how successful a given product or service is. The revenue growth rate provides a clear indication of how well a product or service is doing.
It is advisable that initially the product is monitored on a week to week basis during the early stages of the startup. Moreover, the revenue growth rate can be used to consider how viable particular industries are or which businesses will provide great returns on investment. Consequently, there are benefits and problems with finding the revenue growth rate for your business.
On the upside, because the time frame can be adjusted accordingly, you can get timely feedback, on the progress or lack of, for a given product. Also, founders and investors alike can closely monitor the progress of their investment. However, this can also be misleading as startups usually experience exponential growth at first. Yet there is no guarantee that the growth will continue as economic, political and social factors may impede growth.
Which type of revenue growth do you think will help identify the best trends and patterns to help scale your product? We look forward to reading your comments.