For businesses, there are lots of metrics to track to indicate success or failure. Sales metrics, marketing results, employee engagement, and customer satisfaction ratings are critical data that help businesses understand how they’re performing. But one metric that ties them all together is revenue growth.
At the core of all business operations is whether they contribute to or detract from the business’s bottom line. Revenue growth is the metric that tells us whether a business is expanding or contracting. It’s a simple concept, but it’s one of the most important numbers for any business to track.
What Is Revenue Growth?
Revenue growth is the percentage change in a company’s total revenue from one period to the next. It’s typically reported quarterly or annually. Companies may sometimes track revenue growth more frequently, such as monthly or daily.
For publicly traded companies, revenue growth is often one of the most closely watched metrics by investors and analysts.
“Revenue” itself is often confused with sales and earnings, but there is a slight difference between the three:
- Revenue: The amount of money made from selling goods, services, and from other sources (e.g., investments, fees, subscriptions, and royalties) before deducting expenses.
- Sales: The money generated from selling goods or services before deducting expenses.
- Earnings: Net income after taxes and other expenses have been deducted.
Revenue growth is a top-level metric that can further decompose into sales and price growth. Revenue growth can be a good indicator of a company’s health, but it’s important to look at other factors, such as net income and cash flow.
- Sales Growth: The increase in the value of sales generated by a company over a period of time
- Revenue Expansion: The process of achieving growth by increasing the top line through new products, services, channels, or customers
- Revenue Enhancement: The implementation of strategies to increase revenue from existing products, services, channels, or customers
- Top-Line-Growth: An increase in the revenue of a company
Revenue Growth Strategies
There are many ways to grow revenue, many of which are company-specific. Here are five strategic ways to grow revenue within a business:
Align Sales and Marketing
Sales and marketing often operate in silos because they have different KPIs. Aligning sales and marketing means that marketers can learn what their customers are actually saying to sales teams and optimize their messaging and lead-nurturing programs accordingly.
It also means that salespeople can be more effective because they’re armed with the most up-to-date information about their company’s messaging.
Channel sales (e.g., value-added resellers, system integrators, and consultants) represent 75% of world trade. They can be a great way to reach new customers without increasing customer acquisition costs.
Channel sales also benefit from an established network of relationships that can help businesses promote their products. They enable businesses to scale their revenue efforts without investing in a large direct sales force.
Focus on Customer Retention
Businesses prioritizing customer retention can grow revenue without increasing their customer base. It’s often easier and less expensive to sell to existing customers than to find new ones.
There are many ways to improve customer retention, such as providing excellent customer service, offering loyalty programs, and buyer engagement initiatives.
Memberships and Freemium Models
Another way to grow revenue is to create a membership program or offer a freemium model (i.e., a free version of a paid product or service).
Membership programs can provide customers exclusive content, discounts, and other benefits. Freemium models can attract new customers and convert them into paying ones via subscription revenue.
Upsell and Cross-Sell
Cross-selling is when a business sells a related product or service. For example, if someone buys a camera, they might also buy a camera case or a memory card.
Both upselling and cross-selling present an opportunity to increase the average order value and grow revenue.
How To Calculate Revenue Growth
Calculating revenue growth is relatively simple. The most common method is to compare the current period’s revenue to the same period in the previous year.
Revenue Growth Formula
The revenue growth rate formula is:
Revenue Growth = ((Current Period Revenue - Preceding Period Revenue) / Preceding Period Revenue) X 100
For example, if a company’s revenue were $100 million in Q1 2018 and $120 million in Q1 2019, its revenue growth would be:
Revenue Growth = (($120 million - $100 million) / $100 million) X 100 = 20%
Calculating revenue growth in larger B2B organizations is a bit more complicated. This is because they often have multiple product lines, business units, investments, revenue streams, and geographies.
Businesses typically use a weighted average or an organic growth rate calculation to account for this. A weighted average considers different revenue streams within a company and assigns each stream a weight based on its importance.
How to Calculate Future Revenue Growth
To forecast future revenue growth, businesses typically use one of two methods.
The first method is to extrapolate from past revenue growth. For example, if a company has grown revenue by 20% year-over-year for the past three years, it might expect to continue growing at that rate.
However, this method doesn’t account for changes in the business, such as new products, markets, or competitors.
The second method is to use a bottom-up approach. This involves forecasting revenue for each customer, product, geography, or channel and then summing those forecasts to get an overall company forecast.
This approach is more time-consuming but results in a more accurate forecast.
What Is Good Revenue Growth?
Several factors determine what a good revenue growth rate is, including:
- Company Size
- Growth Stage
- Current Revenue
What’s considered a good revenue growth rate for one company might not be considered a good growth rate for another.
For example, a small startup in a high-growth industry might be expected to grow revenue quickly, while a large company in a mature industry might only be expected to grow revenue slowly.
However, any business with a revenue growth rate of 10% or more is considered good.
What Is Revenue Growth Management?
Revenue growth management (RGM) is a strategic approach to growing a company’s top line. It involves analyzing various aspects of the business—such as customer segmentation, pricing, and channel strategies—to identify opportunities for revenue growth. RGM is sometimes referred to as “top-line growth management.”
Today, RGM is considered an essential part of any company’s growth strategy. Many organizations have entire teams dedicated to managing revenue growth. And numerous software platforms and consulting firms specialize in helping companies with their RGM initiatives.
How to Choose a Revenue Growth Platform
Companies must consider their specific needs and objectives when choosing a revenue growth platform. There is no one-size-fits-all solution—what works for one company might not work for another.
Some of the factors to consider include:
- The type of business (B2B, B2C, ecommerce, etc.)
- The company’s size and stage of growth
- The specific revenue growth goals
- The resources and expertise available internally
- The budget
Once a company understands how revenue growth impacts business operations, it can evaluate different revenue growth platforms. There are many options on the market, so it’s important to do some research before deciding.
People Also Ask
Why is revenue growth important?
Revenue growth is important for any business because it indicates increased demand for its products or services.
This can lead to higher profits and a stronger market position. Revenue growth can also help to attract new investors and provide capital for expansion.
In addition, businesses with strong revenue growth are often able to command higher prices for their products or services. As a result, revenue growth is a key indicator of a company’s financial health and future prospects.
What’s a good revenue growth rate?
Generally speaking, a growth rate of 10% or more is considered to be healthy, but there are times when a slower growth rate of 3% can be just as healthy. It all depends on the unique circumstances of each situation.
Whether a company is growing at a rate of 3% or 10%, it is important to maintain a close watch on revenue and expenses to ensure that the company remains profitable.
What does revenue growth tell you?
Revenue growth tells you how much a company’s sales have increased over a period of time. This information can be used to assess the financial health of a company and its future prospects. Revenue growth is also key in determining a company’s market value.