Revenue Growth Strategy Research Reveals 3 Critical Success Factors
Highlights
- A revenue growth plan designs and communicates the sales goal, identifies the actions to achieve it, mobilizes resources to execute the actions, and rigorously measures progress. Specific objectives, prescriptive methods, efficient resource allocation and real-time analytics collectively create more favorable outcomes than would occur otherwise.
- A revenue growth strategy plots the sources of revenue, plans the strategies to acquire more customers and organizes a target operating model. It defines the path to achieve increased revenue results in the shortest time and least cost. It focuses on the methods and processes that produce growth and avoids wasting time with activities that don't.
- Strategies are needed to achieve business outcomes that matter (i.e., increased revenue or profits) or business outcomes that you haven't achieved. A business strategy built pursuant to a proven framework will define, de-risk and maximize the likelihood you achieve the desired result or the result that has been elusive.
A revenue growth strategy defines the best approach to achieve company expansion. Most often that means a specific approach to increase customer acquisitions, grow customer share and improve customer retention. And do these things at the least cost and in the shortest time.
A research study by Harvard Business School found that companies with clearly defined and well-articulated growth strategies outperformed competitors by 332% in sales, 304% in profits and 883% in total shareholder returns over a 10 year period.
Similarly, growth strategy research published for the Business Growth Report found that companies that actively managed a Revenue Growth Strategy achieved 2.8 times greater year over year growth than those who did not.
Research shows that companies who actively managed a Revenue Growth Strategy achieved 2.8 times greater year over year revenue growth than those who did not.
Click to TweetWhile the financial upside is clear, the path to success is less so.
A Revenue Growth Roadmap
Achieving significant and sustained business growth doesn't occur by happenstance. It occurs pursuant to a well-designed and rigorously executed strategy.
The best revenue growth strategies answer 3 essential questions:
- Where does increased revenue come from? For example, what customers or target markets?
- What revenue strategies will the company use to win new customers and grow existing customers?
- How will the company allocate and optimize all its resources to achieve its goal?
Below is a deeper dive into answering these questions and constructing the ideal revenue growth strategy.
The Sources of Revenue Growth
Achieving a revenue growth target without knowing where that revenue comes from is like trying to get to a destination without a final address.
The strategy identifies where future revenue will come from. It answers the question, 'how much revenue will be sourced from which customers and products?' That's important because some customers and target markets deliver significantly more revenue and profits than others.
The two dimensions to grow your company are product growth and market growth. Expanding your products or customer markets in various combinations will reveal up to four options.
- You can sell more of your existing products to your existing customer markets (a market depth strategy)
- You can take your existing products to new markets (a market growth strategy)
- You can expand or create new products to sell to exiting customer markets (product growth)
- You can create new products for new markets (disruptive or transformative growth)
Each opportunity offers varying levels of risk and impact. The right answer is seldom a single choice, but instead a mix of a few options. Your revenue growth strategy explores, models and identifies the optimal combination of these options.
There's one more important consideration when identifying where revenue growth comes from.
Not all customers deliver the same financial contribution. For most companies, about 20 percent of the customers deliver about 70 percent of revenues and profits. These customers define your Ideal Customer Profile (ICP). If they are pursued ahead of all other customers you will significantly accelerate performance.
The days of imprecise target markets, diluted value propositions and broad-based customer or market pursuits are behind us. Defining your ICP is part of becoming a data-driven, customer-focused company. It's also needed to direct your time and money to where they will earn the highest return.
The ICP defines the perfect customer for your company's solutions. The customers who are the best fit for your products or services. The customers that get the most value and tell others about their experiences. The customers that do not churn and have the highest Customer Lifetime Value (CLV). The customers you want more of to grow your business.
The ICP is built with data that measures and segments customers by fit. Data will cluster customer characteristics, attributes and behaviors to show the highest fit customers and their financial contribution to the company. The ICP is measured in things like purchase volume, customer profitability, customer lifetime value and retention.
The ICP forces go-to-market focus. It enables sales and marketing to better direct campaigns, messaging, offers and investments to the best fit customers that incur the highest conversions and deliver the most profits.
The Revenue Growth Strategies
Now you can identify what revenue strategies the company will use to win new customers and grow existing customers.
Below are the five ways to grow revenues, and some of the most effective hypergrowth revenue strategies for each.
- Acquire more customers. There are many ways to increase customer acquisitions. You can apply white space analysis to find new customer revenue streams, partner with marketing to put more leads into the sales funnel, adopt or improve sales-led prospecting techniques such as Account-based Marketing (ABM), or improve your sales win rates to name a few.
- Increase customer share. Strategic methods to grow customer share may include adopting or improving a Customer Experience Management (CXM) program, a Strategic Account Management (SAM) program or customer affinity program. More tactical methods will include a blend of sales processes and guided selling technology to promote bigger contracts or average sales tickets based on up-sell, cross-sell or bundles.
- Improve customer retention. Best practices to lower customer churn include adopting an Ideal Customer Experience (ICX) program, improving customer satisfaction (CSAT), using technology to predict at-risk customers, or using a combination of technology and retention levers to prevent customer churn.
- Optimize pricing. Price optimization applies customer and market data to find the optimal prices that will maximize company revenues or profitability. It shows the factors that impact price, statistically measures how customers respond to price changes, compares alternative price scenarios pursuant to financial goals, and forecasts how price changes impact revenue and profits. Strategic pricing with price optimization can deliver an immediate and sustained financial uplift.
- Merges & acquisitions. While most M&A strategies focus on cost efficiencies the bigger play is engineering revenue enhancements. This inorganic method can be used to access new customers, product markets and geographies. It can be designed to respond to changing market dynamics or achieve a market dominant or leadership position. It may even be used to reduce competition, take out a competitor or influence price premiums. Both strategic alliances and M&A can be effective when current revenues are flat or to quickly step-up revenue growth.
Your revenue growth plan should arrange the optimal combination of these factors to achieve company growth. Making the best decision will require data and predictive modeling.
The below example is a Johnny Grow model. It diagrams the company's lead to revenue funnel, calculates the conversions at each step and allows management to experiment and forecast different uplift strategies and best practices.
Each best practice is a prescriptive play. When compared to the company's baseline performance and targeted to an industry benchmark it forecasts the revenue impact. Adopting multiple best practices shows the cumulative effect.
This type of predictive analytic can quickly, accurately and completely diagnose the sales operations that most benefit from improvements. It will also advise the data-driven best practices that will deliver the biggest financial upside.
This process shifts revenue generation, and growing revenue, from guesswork to systemic execution and precisely forecasted results.
A Holistic Revenue Model
Good business strategies are holistic and enterprise-wide, not departmental or fragmented.
Pinning revenue growth solely on the sales organization fails to leverage strengths and investments in other parts of the business. So, a good business strategy plans enterprise-wide, orchestrated revenue execution.
The previously referenced business growth research found that the highest growth companies applied Revenue Operations (RevOps) 2.4 times more frequently than lower growth companies.
A RevOps team organizes resources from across the company to collectively achieve a revenue or profit goal. It gets everyone to rally around a shared objective and agreed upon path to achievement. And it avoids business units pursuing their own agendas in an uncoordinated or disjointed expedition.
These collective efforts align multiple business units to better communicate, collaborate and convert prospects and customers across all points of the customer life cycle.
Nothing frustrates customers like inconsistencies between departments of the same company. Nothing irritates CEOs like departments that fail to align with the company’s priorities. A RevOps team shows how customer information is shared across departments and how each department’s most important objectives create results that roll up to achieve the company’s revenue and profit goals.
The Point is This
The revenue growth strategy is the precursor to everything that comes after. Great execution won't get you very far if your strategy is wrong. But a solid strategy defines and communicates the many contributing resources that maximize company performance.
If you have the right business plan, you can actually make a lot of tactical errors and still achieve your revenue and profit goals. This reminds me of a quote by Robert Wood, a Brigadier General and later business executive.
"Business is like war in one respect. If its grand strategy is correct, any number of tactical errors can be made and yet the effort still proves successful." – Robert Wood