The Process of Generating Revenue

Most small business owners would rather focus on increasing revenue rather than reducing cost. Cost reduction is generally perceived as fairly negative whereas revenue improvement is almost always positive. But many improvement projects focus on cost, rather than revenue. Why is that? There are actually a few reasons why that contradiction exists but the basic issue is that revenue improvement is perceived as having more risk for a successful outcome. Cost reduction is fairly straight forward, at least intellectually, and there are usually lots of process measurements available. Revenue can be a little nebulous, often more art than science in many companies, and the measurements are generally strong at the outcome level but fairly weak through the actual “revenue” process. The one added risk factor is that the sales cycle can be lengthy which means the results of an improvement initiative usually take longer than one that focuses on reducing costs.

However, it’s precisely this “black art” nature of revenue that makes it an area where opportunities to improve can exist. Revenue is a complex topic that involves both strategic decisions (what products and what markets) as well as more tactical operational issues (how do we market and sell to targeted customers). For brevity we will focus on the more operational issues. In basic sales and marketing environments, many small businesses rely on the quality of their sales people and tend to watch their sales rise and fall with the economic tides. To actually manage sales in a way that has a chance of deliberately affecting outcomes requires a leap of faith that physically doing (or saying) things differently will at some future point positively impact the end results. To do that organizations need measurements not unlike the kinds they use in more traditional process environments.

In the end, revenue is driven by units sold and the average price per unit. So fundamentally you can either increase the number of units sold or increase the average price. If we take “units sold” as an example, and break it down into its basic building blocks you eventually get to specific activities that marketing and sales people within the business are physically doing every day. So to find opportunity you need to make the connections between what those people are doing and the end result their activities influence. For example, opportunities can be identified within what’s often referred to as the company’s “sales funnel.” The volume and type of accounts that enter the funnel and how many of those are converted to the next selling stage and eventually into more revenue. Every revenue stream can be depicted through a funnel and both the volume and conversion opportunities can be highlighted. But to do that you need fairly clean measures through each funnel, which are not always readily available.

The operational opportunities to change or improve revenue outcomes, or simply add more predictability to them, lie in what people in the sales and marketing environment are physically doing. It’s not always easy to get a handle on their activities but it’s a necessary task for both finding opportunity and also for improving revenue generating capability.

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