This blog is a summary of our recent webinar, “Using Financials to Identify Revenue Opportunities”. In this webinar, we covered our playbook of small business revenue opportunities:
- Measure revenue for insight
- Understand your revenue
- Make wise decisions
Watch the recording if you’d like a more in-depth understanding of these concepts, or continue on for a brief summary.
Measure Revenue for Insight
The first step in using your financials to identify small business revenue opportunities is accurately measuring revenue and its related variable costs. This includes cost of sales (COGS) and other variable expenses related to revenue. This number is referred to as your contribution margin:
Contribution Margin = Sales Price – Variable Costs
You will want to focus your efforts on your most profitable revenue. Don’t look just at contribution margins, but also consider profit velocity. Profit velocity is your contribution margin multiplied by sales volume.
|Product||Sale Price||Contribution Margin||Sales Volume||Revenue||Profit Velocity|
Depending on your industry, you can compare contribution margins and profit velocity in the following ways:
- Product SKU
- Job type
- Service offering
- Product Line
- Industry focus
For example, if you are an ecommerce company, you’d compare contribution margins and profit velocity by product SKU. This will help you identify which products give your business the most profits. You can also segment your revenue by sales channel to give you further data.
Understanding Your Revenue
Once you are measuring and segmenting your revenue in multiple ways, you can do some analysis to make comparisons. Comparing contribution margins, breakeven points, and how revenue might affect other revenue is important. Diversifying is another important factor to consider. When analyzing and understanding your revenue, remember to consider all factors. What looks like revenue opportunities for your small business can be deceiving.
Making Wise Decisions
Finally, you’ll need to make decisions on where to focus your small business revenue opportunities. Optimizing revenue for margins often results in short-term limited growth. Optimizing revenue for growth, often limits margins. There is a time to focus on growth and a time to focus on margin. Analyze and choose wisely. And remember that new revenue takes time to build.
Remember that good measurements enable better decisions. Revenue insights are industry and business specific. So, measure and analyze in as many ways will be beneficial in making key business decisions for your business. And it’s hard to optimize revenue for margin and growth. You may have to be strategic in whether you focus on margins or growth, depending on the stage of your business.