This past week was a tough one. I spent most of the week refining a key component of a company’s sales strategy. Now I love love love to think about business and how to spur growth for the company, however, too much time planning/thinking about growth about means one thing. You aren’t DOING. So this past week was tough because I arrived at the precipice of thinking too much all the while realizing there needs to be some action happening. Btw, let me refrain from calling it a “strategy” lest you think it resulted in some grand plan that will change the company’s fortune overnight. The company had a relatively straightforward goal. To grow sales. But all of us that has ever tried to grow revenue knows that it’s not always such an easy task.
I came up with several (good, bad, and just plain ludicrous) ideas on how this company would grow its top line. But it wasn’t until I considered how the company makes money that gave me the focus and insight to develop a credible and winning approach. I’m writing because I think this simple logical line of thinking can help you consider and develop a path to more revenue for your company. First, write out the simplest equation that explains how your company earns revenue. Another way of asking this is, “what do you need to sell, how much of it do you need to sell, and at what price?” The answer will be typical of what we’d expect to see if most companies wrote out their revenue equation. The revenue equation for the company referenced in this post is as follows:
I’ve changed some of the labels in the formula to maintain the confidentiality of the company. But check out how this company generates monthly recurring revenue (MRR). Revenue comes from three main buckets:
Sales from Master Service Agreements (MSAs)
Sales from Enterprise accounts
Sales from an Indirect channel
At the core each bucket contains a specific quantity multiplied by an average sale price. Note that the portion of revenue generated from MSAs is a result of the number of executed MSAs the company has multiplied by the number of locations the MSA client has multiplied by the average sales price. Similar logic applies to the indirect channel as well.
Note that formula is relatively simple. But it become more powerful and useful once you’ve identified the levers and, more importantly, the levers that you can influence the most. With regards to the company referenced in this post, we decided we had the most influence over the levers that are highlighted in green. Given we know where to focus to drive MRR, we can now develop a tactical plan to address specific levers and drive to more predictable outcomes.
Hopefully this simple exercise helps provides an alternative approach as you consider growing your company’s revenue.