The Big Questions #6
Will a short term revenue growth strategy be the worst business
decision you’ll ever make?
By Daryl Raven
Simply put.. Yes – it might be!
How can revenue growth be so bad?? Surely any extra money in the door is the ticket to success?? Wrong!
Quickly hitting revenue targets, and growing the top line of your P&L might seem like a great story to report to the Board, or may take some expectation of results heat off of you in the short term – but what will determine your long term success is not that top revenue line – but rather it is the bottom one.. Profitability.
The main reason that this is not a strategy you should put any faith in is because anyone, yes anyone – even the world’s worst business strategist – can make a couple of changes and deliver some level of short term revenue growth – but if that growth isn’t supported by other robust and meaningful strategies to control it – it will almost certainly only result in delivering ‘Bad Revenue’ growth.
Bad Revenue is income that does not contribute to the 3 core pillars of business success; sustainability, scalability or profitability. Bad Revenue is often discount lead, poorly planned, or reactive. It may undercut your costs, or it may erode the perceived value of your product/service – meaning when you do later try to increase prices, or promote your quality, your potential customers may not stick with you, or even worse – you may take so much ‘Bad Revenue’ to grow your top line – that you genuinely cannot deliver what you’ve promised and stay profitable.
These are all common outcomes from relying on Bad Revenue as a foundation to build upon. Is that extra revenue worth risking that your business could be irreversibly compromised?
“What will determine your long term success is not the top revenue line – but rather it is the bottom one.. Profitability.”
As a business leader you must continually strive to be engaged and aware of how your strategies are created and executed. Specifically, it is imperative that you dig deeper into asking the ‘why’ questions behind any proposed changes, or behind initial results that may develop. Don’t allow yourself to be too easily convinced by a strategy that delivers false wins – you must understand what unwanted side effects may result from any changes that your teams make.
Make no mistake of the moral you should take out of this story – Yes; you should seek to grow your revenue. Yes; try to find new ways to develop additional revenue streams – just make sure you do this whilst being acutely aware of your long-term strategies including profitability targets, cost structuring, customer mix, sales distribution and channel management. If you have this clarity, and have your teams committed to it, you can determine what constitutes Good Revenue for your business and then go after it! Don’t settle for anything less.
As a general rule – Make sure you’re a leader that has depth in your strategy to avoid needing any fast revenue growth to be a band-aid. After all; a big discount promotion, a giveaway, or ‘buying customers’ really aren’t strategic at all – they’re tactics… and normally bad ones.
You should work harder to establish sophisticated long-term strategies in your business which will allow you to view revenue growth/decline is a indicator of true success – and not an overly simplstic measure of success itself. If you do it well any success you have as a result is far more likely to be sustainable, scalable and profitable.
If assessing your current revenue strategy is something you would like to dive into with a strategic partner who can help you navigate the path; the team at Raven Strategic are ready to help, so contact us today.