Every organization’s goal is to get more money coming into its business account or grow its revenue. As such, companies have mastered the fundamentals of pricing, assortment, promotions, and trade investments. These elements contribute to revenue growth and have seen sales go through the roof in many categories.
Unfortunately, the landscape is shifting, and the bar is rising, mostly as companies recover from the initial economic shock caused by Covid-19. Despite the advances in analytics and the growing amounts of data, many of these efforts will work against most companies.
They will unintentionally lead to reductions in shareholder value and cash flow at the most critical time. What strategies can your business embrace to prevent this downward trend and ensure you increase your revenues? Here are the basics.
What is Revenue Growth?
The term refers to the increase or decrease in the sales of a company between two specific periods. It’s usually expressed as a percentage and is useful in helping companies identify trends in business.
Having an eagle eye on how much your business generates is an essential and healthy practice. It prepares you to decide on crucial business processes like budgeting, hiring, scaling, and more. However, for the metrics around revenue growth to work efficiently, you must understand and master them.
How to Calculate Revenue Growth Rate
Calculating the growth of revenue depends on the periods in question. The figure obtained can be either a positive or negative percentage. The approach entails subtracting the revenue of the previous period from the current revenue and dividing the difference by the previous period’s revenue. The period can be monthly, quarterly, or annually.
For a long time, companies have relied on traditional revenue growth management strategies, which put them at risk. They tend to assume that if they grow their top line and manage their costs, profits will naturally increase. Unfortunately, this approach of managing each line individually as opposed to strategically is more likely to fail.
As such, you need to have a strategy that drives long-term economic profit growth as the primary goal. Approximately 80% of companies that deliver top quartile economic profit growth also experience above-average revenue growth.
An Integrated Approach to Revenue Growth Management
In the past, businesses have used tactical RGM interventions towards maximizing their revenue. For example, they would adjust prices depending on consumer price elasticities or reallocate trade investments toward higher-growth accounts. On the contrary, it would be more effective to elevate RGM to shape the commercial strategy as opposed to just enabling it. This is known as the path to strategic RGM, which can help a company derive more value from its choices.
Drawing insights from the following categories, companies can get a complete picture of their opportunities.
- Competitors: they can better analyze the brands in the picture, how they play and win, how they are positioned in the market, and what their economic objectives are
- Category: the most attractive revenue source and how it evolves with time
- Consumers and shoppers: who they are, their market size, how they make their purchasing decisions and trade-offs, how they respond to price changes, and their attraction to other products
- Occasions: which occasions have the highest consumption rates, what needs are relevant to each event, and how current propositions and products meet those needs
- Channels and consumers: what current and future growth and profitability opportunities exist and the quality of execution in each channel
Strategic RGM requires an in-depth understanding of each of these components and how they influence productivity. A company can design and execute both long- and short-term initiatives that drive above-market growth with the right insights. These might include strategies to fill the white spaces in the market or changes in the pack-price architecture to address consumer needs. The insights are also useful in helping a company prioritize investments in operating and capital expenditures.
Strategic RGM in Action
Well-implemented modern RGM can generate profits equal to 3-5% while delivering value for retailers and consumers. Strategic RGM is a combination of three main components, planned and executed over a length of time:
1. A Detailed Pricing Strategy
Once you understand how the consumer shops in a particular category, you can create a specific short- and mid-term pricing strategy. This is best divided into region, stock-keeping unit, and channel. You can then stimulate pricing scenarios based on how shoppers switch their behaviors and shopping missions. With time, your business can increase its prices above the rate of inflation, reduce prices, or maintain prices for individual SKUs.
2. Gravitation Towards Higher-Growth Revenue & Profit Pools
You can also introduce new brand packs and products aligned with consumers’ needs once you have deep insights into their purchasing habits. It’s also crucial to identify underserved opportunities complementary to your business’ current portfolio. The white spaces you establish in the market should inform the sub-segments of products to introduce to consumers.
3. Tailored Shopper Activation
This is best achieved when you establish the occasion when consumers best enjoy a specific product. With this insight, you can pursue partnerships with other businesses to offer joint discounts while increasing your company’s brand awareness.
If you develop disciplined, granular, and economic profit-driven RGM you will be in a better position for both short- and long-term outperformance in the market. RGM involves an overhaul of the mindset, culture, and capabilities, which pay off by providing a competitive advantage over peers.
If you are yet to invest in RGM to increase your brand’s performance, you are missing out on a significant driver of value. Mapping revenue growth is all about data management, which is something Delegate does very well.
Do you want to talk to an expert about Revenue Growth Management? Contact the Delegate team today to book a consultation.