While it is true that a dollar is a dollar, when it comes to assessing your sources of revenue not all revenue is equal.
When it comes to revenue, which source is best?
When you look closely at your client mix, or the industries you serve, or the range of services you provide, you’ll usually find some of those are better, or more preferred, than others. This is due to variances in:
- Profitability of the sale
- Ease of access to the customer
- Opportunity to make repeat purchases
- The degree of alignment between the customer and your business
In many businesses insufficient consideration is given to which source of revenue is best, or what type of customer will offer most value (think of concepts such as Ideal Client Profile and Life Time Value). The result of this limited thinking can be missed sales opportunities, increasing pressure within the sales function and ongoing frustration within the business.
Whilst it can be easy to take whichever sales come through the door first (or are won by the sales team first, the “low hanging fruit”) in the long run looking for ‘smart’ revenue is the better way to go.
‘Smart revenue’ is revenue gained from sources that are:
- Relatively easy to identify
- Profitable for you to service
- Attracted to you because of your competitive edge or Unique Sales Proposition
Let’s have a quick look at each of these smart factors.
1) Relatively easy to identify
The key here is that if you can easily identify (categorise and locate) your potential customers then you can achieve efficiencies in marketing and sales activities. You can focus your efforts on “fishing where the fish are” which reduces time, effort and ultimately lowers the cost of client acquisition.
A good starting point is to profile your existing/previous customers. Identify common traits, location, or requirements. These days this sort of profile is called a “persona” or “avatar” (meaning to represent the person you are describing as a customer). Once you have that definition you can extend that thinking to target new geographic areas or different types of prospects you haven’t approached before.
2) Profitable for you to service
It’s important to consider the profitability of the sales you make. Not all revenue is equal when it comes to profitability.
Sometimes profitability seems easy to compute, such as the actual cost of making a product, buying stock or providing a service. In financial terminology the profit at the top level is considered to be Gross Profit, and is directly affected by the costs of acquiring the service/product (cost of goods sold) and pricing decisions.
However, there can be other costs associated with servicing the customer that silently eat into the profit generated at the time of the sale. These types of costs impact the bottom line (the Net Profit) but are often overlooked when decisions are being made about the viability of a revenue source.
These silent costs can include:
- Staff time to provide customer support
- Replacement of products
- Disruption to your business of servicing a particular client (or category of client)
- Time and travel required to manage the account from a sales perspective (especially if your customers are larger businesses)
- Catering to one-off or custom orders
- Costs associated with late payment and follow up
Sustainable sales are ones that you can recreate over time. Repeat sales to the same customer are a great example of this. Or recurring billing for a subscription service. Or being able to easily attract additional new customers (Refer to Smart Revenue factor #1).
The opposite of sustainable sales is the process of providing heavily customised products/services as one-off sales, or situations where your customers are hard to find (such as the off-season in a tourist location).
It’s also important to ensure the product or service you are providing has longevity of demand. It can be tempting to jump on the band wagon and sell something that is a current trend or fad. But is that really your business model? Can you react quickly and do you have the nimble mindset, business structure and pricing to be successful in that market?
Most businesses are designed to work on sustainable sales, but don’t do it very well.
4) Prefer your business because of your competitive edge or Unique Sales Proposition (USP)
This goes to the core of what you are offering. Does your service/product contain something that is in demand? Have you created a competitive advantage, or edge, that will be wanted by your potential customers?
Generating smart revenue is partly about making the right strategic choices when you develop and launch new services or products. If your products can be perceived as something a bit “special”, or different to competitors in a good way, then your customers will find it easier to say yes.
For service providers sometimes that something “special” is the knowledge you have about how the clients industry works, their particular needs, and how your service can help them get better results and reach their goals.
If you would like to arrange a complimentary consultation where we can discuss these ideas further and see how you can tap into a greater share of ‘smart’ revenue for your business, please get in touch.