As a business owner, you’re responsible for monitoring several performance metrics, including revenue growth.
Revenue Growth KPI is one of the most critical ones to determine the health of your business.
The growth rate is the increase or decline of revenue over a given time frame. It indicates how quickly your company is growing.
Why do certain companies succeed and see annual revenue increase while others fail?
What factors lead to a drop in revenue, and how can you increase it instead?
That is just what this guide will cover, along with everything else you need to know about estimating revenue growth, revenue growth strategies, revenue growth management, and creating a productive revenue growth strategy.
Without any further ado, let’s get into this article quickly:
What is Revenue Growth?
A percentage-based KPI known as revenue (or gross) expansion shows how well positioned your business is to grow its revenues over time.
Depending on when you’d like to measure this timeframe, this period could be measured in months, quarters, semiannually, annually, or even longer.
Before getting into the technique and specifics of calculating revenue growth, we must clarify the differences between revenue, sales, and earnings since the three terms are sometimes used interchangeably.
Before any expenses are subtracted, revenue is the amount of money a business makes from all sources, such as sales, investments, interest, royalties, and more.
Before any expenses are deducted, sales are the whole amount of money a business makes from only selling goods and services. When sales are a company’s sole source of income, the terms “revenue” and “sales” can be used interchangeably.
Contrarily, profit, or net income, is left over after deducting expenses.
Sales and earnings are sometimes mistaken with “revenue.” So let’s quickly review the variations:
- Revenues: Total amounts of income earned from all sources, including sales, investment returns, royalty payments, and more. Costs are not included.
- Profits: The profits from buying and reselling goods or providing services are called “profits.” They don’t include any costs.
- Earnings: Earnings subtract costs from income. Another significant distinction between sales, earnings, and revenue is that while revenue growth should be viewed as a strategy rather than an ultimate objective, sales and earnings tend to be goal-oriented.
Revenue Growth as a Concept
A strategy for revenue growth is a way to increase sales and rate in revenue, both now and in the future. Since each firm has unique requirements and sources of revenue, every revenue growth strategy will be unique.
However, your revenue goals should focus on ensuring organic growth in marketing, sales, and customer experience and that teams are synchronized, in touch, and collaborating effectively.
Ensuring staff are generally happy in their jobs—we’ll get to that in a moment—and involving them in the planning process are two excellent ways to do this.
You should consider using an all-in-one platform to help streamline work and communications among different departments within your company.
Which channels drive the increase in revenue?
With revenue generators, you may take many distinct paths; but you should choose one based on your offer.
- Email Marketing: One of the most reliable ways to increase sales is through email marketing, which is similar to growing a customer base for your product in many respects. Although inboxes are notoriously full, you can use techniques to make your emails stand out.
- Content marketing: It is a great approach to reach a much larger and more devoted buying audience, but it does demand much dedication to publish consistently and at a high quality over time. It’s yet another way to expand your email list.
- Freemium offers: Offering a free, introductory version of your product is a great approach to get people interested in it and gain early traction.
- Giveaways: Don’t give everything away. However, loyalty and referral bonuses can help retain current members and attract new ones.
Each option can potentially increase your revenue significantly, but you must be prepared for the extra work involved. They’re only worth pursuing if you have the time, energy, and resources to get them done right.
Why Should You Prioritize Revenue Growth?
Because revenue growth is so wide, you should see more clearly what’s working, what isn’t, and how to improve things.
Start immediately and reevaluate your company with your revenue growth strategy as often as necessary.
Waiting until a crisis may force you to use an emergency profit approach. Unfortunately, this prioritizes cost-cutting over revenue growth, which will worry staff, investors, and clients.
A formula for revenue growth should direct plans in other areas, such as:
- People resources
- Improvement of one’s career
You may more quickly analyze the outcomes of each area’s tactics to identify and address pain areas if your revenue isn’t performing as well as you had hoped.
You should always think about earning more money before thinking about growing revenues. Because profit is revenue and fewer expenses, you’re probably doing something right if you’re making more money.
Although ensuring that every team collaborates on the best broad approach for revenue growth, there are other, more focused methods.
Following are four reasons why revenue growth is crucial for a business:
1. Revenue Growth – Profitability
The main goal of a business is to make earnings. The extra earnings you make, the greater possibility you and your business must acquire the advantages and rewards of jogging the commercial enterprise. The number one driving force of profitability is sales.
The extra you develop sales, the more likely you’re to develop income. You maximize income if you obtain better sales tiers and manipulate charges to upward push at a decreased charge.
By accelerating the rate of sales increase, you generate extra income quicker, which allows you to:
- Take more income.
- Reinvest in your enterprise.
- Create new assets of sales.
- Merge or accumulate any other business.
- Enhance the value of your business.
- Provide appraisal
Making strategic decisions in your company is made possible by the valuation of your firm. Your capacity and freedom to make crucial business-related decisions depend on the value that others place on your company. Your valuation will indicate your firm’s worth and how much you will either make or lose from these activities if you wish to raise investment capital, sell your business, buy another business, obtain a bank loan, or go public.
Early-stage businesses must demonstrate that they have a product that can produce money and a methodology for expanding it. Investors will take this important component of their valuation into account.
Applying a multiple to the value of your firm is based on your present amount of sales and a visible growth tendency. Other factors also influence the multiple assigned in the appraisal of your business. However, revenue growth is a definite predictor of a company’s potential that is factored into its price.
Your company’s profits will always play a significant role in determining your company’s worth. You can obtain greater financial gain and access more money for strategic transactions. Profitability for tech companies could not come for a while.
The trajectory of your revenue growth represents the future strength of your firm. Increasing revenue growth is a favorable trend and your company’s value. Revenue growth, and in particular, large rates of growth, are crucial factors in determining your company’s valuation.
2. Revenue Growth – Employees
The development and retention of talent are essential to the success of your business. Most businesses are having trouble finding workers who can effectively fulfill their needs. Your company has to retain its top talent if it is to grow, and it also needs more top talent to meet new and developing business needs.
The success of your staff depends on increasing your revenue. The level of employee satisfaction is likely to increase as your business expands.
Employees anticipate profiting from an expanding company. Employees can obtain higher salaries, career advancement possibilities, management performance bonuses, and a stake in stock distributions. Offering these perks based on your company’s sustained sales growth helps you retain employees and recruit top talent. Your employees should gain if your business expands.
The inverse is accurate. It is difficult to keep good personnel and tough to find new talent. Higher salaries are frequently used to recruit top candidates. It inflates your expenses and reduces profits.
Increased profits from increasing revenues allow you to invest in your employees. Today, you must compete for customers, succeed with your team, and draw in new talent for your company. Your employees will see evidence of their labor, as indicated by revenue growth.
The millennial workforce experiences increased job satisfaction because they feel their efforts impact them. Achieving revenue growth in your company allows you to retain the best employees, motivates them to perform at a high level, and fosters a culture of success everyone wants to be a part of and contribute to.
3. Revenue Growth – Customers
The fact that customers are purchasing your good or service is the best indication of its value. Working hard is necessary to keep your current clientele. It isn’t easy to win over new clients, and it costs more money to do so.
New potential clients are more likely to purchase from you if they notice that others are doing so. They also start purchasing.
Your company must prioritize developing and enhancing its customer engagement capabilities in today’s more customer-centric business environment. Growing your company’s revenue shows that you successfully provide clients with value. Revenue growth is a critical indicator of your success in satisfying clients.
Social media is being used today to spread information about businesses. These reports will either create a networking effect that drives additional client acquisition and growth or act as a barrier that slows down such progress. You must continue to invest in meeting consumer demands with the revenue you create. If you cannot provide the value that clients anticipate from their purchase of your product, they can readily find alternatives.
To invest more in your client’s success, you need the resources to successfully rising sales. The more your revenue grows, the sooner you may enhance your products and services and win more customers.
Additionally, since they look for the same advantages and value as your current clients, it will be simpler for you to attract new clients who will boost your revenue.
4. Revenue Growth – Valuation
Making strategic decisions in your company is made possible by the valuation of your firm. Your capacity and freedom to make crucial business-related decisions depend on the value that others place on your company.
Your valuation will indicate your firm’s worth and how much you will either make or lose from these activities if you wish to raise investment capital, sell your business, buy another business, obtain a bank loan, or go public.
Early-stage businesses must demonstrate that they have a product that can produce money and a methodology for expanding it. Investors will factor it into their valuation as a major factor.
Another critical factor is the rate of revenue growth. The pattern of your revenue growth indicates the potential strength of your company.
An increasing revenue growth rate is seen as a sign of favorable trends and, consequently, your company’s value.
Revenue growth, and in particular, large rates of growth, are crucial factors in determining your company’s valuation.
Pros of Calculating Revenue Growth Rate
Calculating your revenue growth rate is an effective technique to determine how quickly your business is expanding.
By tracking this proportion monthly, you can better monitor your expansion and identify your effective business procedures.
If your business’ revenues increase after introducing a new service or offering, then you can assume that the introduction of this new service or offer was successful.
You might be able to make better decisions regarding your business by considering your business’s financial performance and its marketing and operational activities.
This growth indicator is an excellent approach to convince potential investors that your firm has promise if your organization is interested in attracting them.
Investors might want to see evidence of your company’s healthy growth trajectory. This figure shows that the business is making greater money each month.
Cons of Using a Sales Growth Rate
A disadvantage is that your company’s sales growth rates will be relatively high when they start and have some successes.
Another drawback is when organizations assess their achievement based on earnings development rates. You should likewise take into account your profits.
You’ll be left with this number when you remove all company expenses from your sales.
This measurement may shed significance if you just focus on sales without considering your spending. Ensure your firm is handling its monthly bills efficiently and generating sufficient revenue.
How to Increase Revenue?
Are you looking for new organic revenue sources but not feeling motivated?
Well, here are four marketing strategies for increasing sales that you may customize for your goods or services to increase sales naturally:
- Email promotion: When used effectively, email marketing may have a wide range of positive effects on a company’s reputation, client connections, business engagement, sales volume, income, and return on investment.
- The Internet: In 2020, 3.6 billion individuals used social media globally; according to Statista, this figure will rise to 4.41 billion by 2025. Thus, social media is a fantastic tool to interact with clients and develop your business.
- Content promotion: Although it takes much dedication, content marketing can help you increase revenue by bringing relevant and organic traffic to your company website, generating new leads, building client trust, and more.
- Affiliate promotion: According to Statistica, the United States will spend $8.2 billion on affiliate marketing this year. Affiliate marketing programs are low-cost, low-risk, and capable of reaching the targeted audience, and when done correctly, they ensure a good return on investment.
What Leads to a Reduction in Revenue?
It would help if you determined the root cause of your income decline before implementing any of the abovementioned revenue development tactics.
Before stopping the erosion of profits, you may need to dig deeper to understand the various causes.
Knowing the typical causes of decreased business revenue will enable you to take action and identify issues early on before they become out of control.
Here are some causes of low sales success that you may be ignoring right now:
- Uncertain or ill-defined objectives and goals: Company objectives are the driving force behind an organizational structure, personnel development, strategic planning, and budgeting. Without clearly stated and shared goals and objectives, it can be challenging for departments and staff to create high-quality work that attracts clients and generates income consistently.
- Poor communications and marketing: Lack of investment in market research results in a limited product or service development; you may be providing a good or service that is valuable to your target audience, but they are simply unaware of it.
- Pricing: The ability of your company to create money can be directly harmed by undertrained workers in any firm sector. For instance, a customer care agent with weak communication skills could accidentally misinform or upset a potential customer.
- Pricing problems: Your firm may suffer if you overcharge for your goods since clients may choose to buy from rivals. On the other hand, underpricing reduces your revenue streams and might even damage the reputation of your product brands.
- User experience: Is your product operating effectively? Are you pleased with your performance? Is the product attractive to the eye? Do you post frequently? These factors affect user experience, which affects revenue growth.
- Uninteresting value proposition: Not seeing immediately how your offering meets their demands can make your target clients turn to your competitors if your value proposition is unsuccessful.
Revenue Growth Trends to Look Out for in 2022
Even though it’s called “revenue growth,” to be honest: occasionally, your revenue may decline or stay the same.
Each stage that a business should anticipate going through has a different income expectation:
- Startup: Everything is new, and you are still getting used to managing the company. Most firms, sadly, close during this period since they don’t experience revenue growth. (Outside assistance can help with revenue expansion and other business difficulties.)
- Maturity: The company has been around for a while, and you may feel confident in your plan for expanding your revenue. At this point, revenue will likely increase predictably, perhaps by 5% annually.
- Growth: Your business is now sufficiently established to have a business plan and the time to pay attention to issues other than internal issues. Because you need to raise investment cash, your revenue may stagnate or even decline.
- Decline: This phase can come on suddenly. In any firm, revenue fluctuates. However, if your sales have been declining steadily for at least three quarters, something is wrong, and it probably started years ago.
In other words, achieving reasonably steady income growth may take years.
Revenue is a tactic rather than a goal because of this.
Although you may not be able to influence the market’s annual growth rate, you can control how you and your sales team react to it, and your revenue development strategy is that reaction.
Let me know your thoughts in the comments below.
Frequently Asked Questions
Why is revenue growth crucial?
A metric that measures a company's success is its annual revenues. Businesses can use this metric to measure their performance and predict future results.
How do you calculate the revenue growth?
By comparing the revenue from the prior month, quarter, or year to the current one, you may estimate revenue growth.
The formula is (Current Period - Previous Period) / Previous period, and the result should be a percentage.
What is the difference between sales growth and revenue growth?
Revenue is the sum of money received from sales, investments, fees, and other sources, whereas sales are the act of buying goods and services.
What kind of revenue growth is ideal?
Your company's general goals, where it is in its life cycle, and the changes it is going through affect how well your revenue growth is going. However, a reasonable term in revenue growth projection throughout the most steady time is around 5% yearly.
What is the management of revenue growth?
The term "revenue growth management" describes the analysis of user behavior to enhance prices and products.
What is an acceptable term pace of revenue growth?
Although many variables might affect a company's potential revenue growth rate, any enterprise with a 10% or higher revenue growth rate is regarded as successful. However, a growth rate of 2 or 3 percent is also considered healthy revenue growth in other circumstances.