• Lighthorne Partners

Do you have a robust revenue growth plan?

Updated: Feb 6, 2019

For business owners and investors seeking to realise returns on their investment, the valuation they might accrue for the company they own is a constant consideration. One major determinant of this valuation will be the existence of a robust revenue growth plan.

Future sources of revenue growth, not past performance

In today’s world a revenue growth plan cannot be a simple extrapolation of past performance indeed, in sales, past performance is rarely an accurate indicator of future performance. A robust revenue growth plan identifies the key sources of future growth and stimulates the actions the company intends to take to deliver this growth.

“The drivers of revenue growth are both universal and astonishing simple”

Many business owners might find this challenging but despite there being myriad sales strategies that could be employed; the drivers of revenue growth are both universal and astonishing simple. Revenue only grows when one, or more, of the following is true:

1. The company is growing its customer base

2. The company is growing its invoice value per unit of sale

3. The company is growing its rate of sales

Linear or exponential revenue growth?

Revenue will grow in a linear fashion if one of these factors is growing. For instance, if a business expands its customer base by 10%, its revenue will grow in line with this, assuming all other things are even. When more that one of these factors is growing, growth will be exponential. For instance, a company whose customer base is growing by 20% and is accruing 10% growth in invoice value per sale, doesn’t grow at 30% but at 32%.

A robust revenue plan therefore shows what actions the company is taking to grow revenue exponentially by driving all three factors.

Key questions to drive revenue growth

If the company you own or have invested in does not yet have such a plan in place, now is the time to consider some key questions:

1) What is the current customer base? A consolidated customer base might lead to the conclusion that the addition of a small number of similar customers would drive significant growth. A fragmented customer base might lead to strategies that seek to rapidly expand into a new market or region.

2) What is the value of the average sale? Is this competitive (or perhaps too competitive)? The answers to these questions might lead to price changes or the provision of more added value sales. Are invoice sales skewed towards a small number of large invoices masking a large volume of low-value sales? If so, strategies to balance sales or to support key accounts better might be needed.

3) What are re-purchase rates? If these are limited by the nature of the product or service, what additional and complementary products might you offer? If the potential to use your product is expandable, what strategies can be employed to avoid shortages? If certain customers have declining re-purchase rates, develop strategies to re-engage.

These relatively simple analyses are accessible to all, but they are often absent in investor’s considerations when it comes to exit. The presence of a robust revenue plan is certain to improve company valuation so now would be a good time to invest in building one!

Toby Desforges has over 30 years’ experience working with leading consumer goods businesses including Mars, PepsiCo, Sony, Unilever, Danone, Coca-Cola and Tesco.  As the co-author of “The Shopper Marketing Revolution”, he is a globally recognised expert in Marketing and Sales Development.

You can contact Toby directly at toby@lighthornepartners.com

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