Revenue Strategy

Revenue is the first step in building a profitable business. Without it, a company cannot grow or sustain itself. A revenue strategy is a plan to maximize income from existing customers, acquire new customers and manage expenses. It also serves as the marketing arm for the company, helping it stand out in its industry and attract potential buyers.

What is a Revenue Strategy?

A revenue strategy is a plan that outlines how a business will maximize its income while also reducing costs. It combines marketing activities, product development, pricing strategies, and customer success initiatives designed to increase sales.

A company’s revenue strategy revolves around getting more customers to buy and use its product(s). To achieve this, it must develop short and long-term goals and tactics that prioritize both revenue optimization and profitability.

Revenue strategies don’t have a one-size-fits-all approach—they vary based on a company’s unique business model and operational structure.

Subscription businesses, for example, focus on finding ways to increase customer lifetime value (CLV) through upselling and cross-selling, while ecommerce stores focus on increasing website traffic and conversion rate optimization (CRO).

B2B sellers typically prioritize customer acquisition and retention, while B2C companies focus more on pricing and promotional strategies.

Synonyms

• Revenue plan: An organization’s method for acquiring and retaining customers, optimizing costs, and increasing revenue.
• Monetization strategy: A plan to increase sales by increasing customer lifetime value or introducing new products/services.
• Revenue growth strategy: The strategy put in place to enter new markets, capitalize on existing ones, and develop sales and marketing frameworks that drive revenue growth.
• Revenue cycle management strategy: The framework RevOps teams use to optimize the revenue cycle for efficiency and accuracy.
• Revenue management strategy: The methodical approach to maximizing revenue by studying customer habits, understanding pricing structures, and optimizing inventory.

Revenue Planning vs. Revenue Strategy Development

Before we dive into revenue strategy development, let’s explore the difference between revenue planning and revenue strategy. They are related concepts but involve different stages in the overall process of managing and optimizing a company’s revenue. Here’s how they differ:

Definition

Revenue planning involves the systematic process of setting specific financial goals, creating revenue forecasts, and outlining the steps and resources needed to achieve those goals. It is a more tactical and operational approach focused on the short to medium term.

Revenue strategy development encompasses formulating a broader, long-term approach to revenue generation. It involves making high-level decisions about the overall direction and focus of revenue generation efforts, considering factors like market positioning, competitive advantage, and sustainable growth.

Time Horizon

Revenue planning typically has a shorter time horizon, often covering annual or quarterly periods. It concerns the immediate steps and actions required to meet current financial targets. On the other hand, revenue strategy focuses on a longer time horizon, often spanning multiple years. It involves setting the course for the organization’s revenue generation efforts over an extended period and adapting to changes in the business environment.

Scope

Revenue planning focuses on specific operational aspects such as sales targets, marketing campaigns, pricing adjustments, and cost management to achieve short-term revenue goals. Meanwhile, revenue strategy involves broader decisions about market positioning, product/service offerings, target audience, and overall competitive advantage. It considers the holistic approach to revenue generation aligned with the organization’s mission and vision.

Flexibility

Revenue planning requires flexibility to adjust to short-term changes in the market, customer behavior, or internal factors. It involves making tactical decisions based on current conditions. While adaptable, a revenue strategy is generally less flexible than revenue planning. It involves more fundamental decisions and a longer-term vision that may not change as frequently.

Integration

Developing a revenue plan is integral to implementing the broader revenue strategy. It takes the strategic decisions made during revenue strategy development and breaks them down into actionable steps. Revenue strategy serves as the overarching framework within which revenue planning takes place. It guides the various operational and tactical decisions made during revenue planning.

How to Develop a Revenue Strategy

Developing a revenue strategy requires a deep dive into business goals, customer preferences, and industry trends. Companies need to define the strategies that make the most sense for their unique situation and focus on tactics that will drive maximum revenue.

1. Define Business Goals

On the surface, “business goals” can mean anything from “revenue growth” to “market penetration.” But at their core, a company’s business goals should focus on its long-term success.

Examples of business goals include:

• A B2B software company plans to enter a new market.
• An online retailer needs to increase its number of repeat customers.
• An agency wants to productize its services to create recurring revenue streams.

When an organization has a clear idea of its overarching goals, its decision-makers can figure out what exactly they need to do to get there.

2. Identify Target Market and Its Needs

A company’s target market comprises its former, current, and potential customers. Companies need to understand what the market wants, how they want it, and at what cost to reach them.

New Customers

When a business is considering its new and potential customers, there is a lot more to learn than just demographics and geography.

Evaluating new customers and their needs involves:

• Collecting data through interviews, surveys, and focus groups.
• Testing different sales methodologies before settling on the right approach.
• Working with sales teams to enter new markets.

Usually, new customers (even if they are in new segments) are loosely based on a company’s existing ideal customer profile (ICP) and where they’ve historically had the most success.

Still, testing and validation are required before a company goes “all-in” on new target customers—sales reps and company stakeholders don’t want to risk investing in revenue efforts somewhere they won’t get a return.

Current Customers

Current customers are the bread and butter of most sales orgs. They’re the customers a company can rely on for:

• Current revenue
• Feedback on existing products and services
• Insight into what customers want, don’t want, and are willing to pay for
• Future sales opportunities

Although figures vary from industry to industry, companies generally have a 60% to 70% chance of selling to existing customers compared to a 5% to 20% chance of acquiring new ones, according to data from Zippia.

In the same report, Zippia reveals that (on average) 65% of a company’s business comes from its current customers.

For SaaS companies, customer retention is four to five times less expensive than customer acquisition.

When assessing current customers, a company needs to develop a deep understanding of:

• Who they are, what motivates them to buy from the company, and how often each customer makes purchases.
• Which products and services they are interested in, what their buying behavior is like, and how likely a customer is to renew or upgrade services.
• How their purchase history could influence their future decisions.

Former Customers

Former customers are excellent data sources because decision-makers can look at them retrospectively. A company can analyze past relationships to learn from its successes and failures.

For example, a company could:

• Review which customer segments purchased specific products.
• Find out why they stopped buying the product or service.
• Examine what motivated them to purchase in the first place.

This information allows decision-makers to build better customer profiles and create more effective sales strategies.

3. Examine Current Customer Pricing

How customers respond to the current pricing structure can help companies understand where they can make improvements that maximize future sales revenue.

A company can test customers’ willingness to pay with price elasticity experiments—i.e., offering different prices for the same product or service and analyzing how many people are willing to buy at each price point.

Businesses should take a look in the following areas to evaluate where their pricing could use improvement:

• Products that generate the highest revenue per customer
• Products that can be sold at the highest profit margin
• Which customers are willing to pay the most for products or services
• Which products are frequently purchased or subscribed to together
• How discounts have affected purchases
• If customers are willing to pay more for additional features or services
• How customers perceive the value of the product
• What competitors do to set their prices

Price optimization is also a powerful strategy that enables companies to maximize their profits by determining an optimal pricing model based on holistic data and market conditions.

4. Analyze Opportunities in Pricing Structure

After auditing the pricing structure, even companies with near-optimized pricing typically find room for improvements.

These opportunities represent actionable steps an organization can take to drive business growth using its pricing strategy.

For instance:

• Microservices ensure various customer types get exactly what they need when they use a software product.
• Dynamic pricing adjusts prices based on customer behavior and market conditions—perfect for customers that react dramatically to price changes.
• Volume discounts incentivize customers to purchase more.
• Subscription packages bundle together different products and services for a discounted rate.
• Tiered pricing helps businesses reach a wider set of customers by automatically segmenting them based on their size.
• A recurring revenue model helps companies generate monthly revenue, which is easier to base forecasts and valuations on.

In the above examples, updates to the product may also be required.

If a company completes steps one and two and realizes its customers are using the product for two main functions, it might break them up into microservices and sell them as standalone features or add-ons.

Those product updates will be reflected in the new pricing strategy, which is geared towards attracting new customers and, eventually, new revenue.

5. Set Reasonable Revenue Targets

Sales and marketing teams won’t reach their revenue goals unless they’re within the bounds of reason.

Here’s a quick step-by-step process for setting realistic revenue targets:

1. Analyze customer activity to determine their willingness to pay
2. Review past performance and industry trends to gauge potential
3. Identify strategies with the highest impact potential
4. Invest in sales and marketing efforts that bring in qualified leads based on that impact
5. Establish quantifiable KPIs that track progress throughout the sales process.

To track business performance accurately, companies have to have baseline metrics that point to clear progress or failure. They can take a look at the following factors when setting goals:

• Average deal size
• Conversion rate (percentage of leads that become paying customers)
• Customer lifetime value
• Cost per acquisition (CPA)
• Cost per lead
• Customer retention rates
• Return on investment (ROI)

Revenue Strategy Examples

The key to a successful revenue strategy is understanding the types of customers a company has—both current and former—and finding ways to better serve them with product, services, and price.

Here are a few examples of successful revenue strategies:

• A software company finds that its B2B buyers switch to another provider once their companies grow past a certain number of seats. They update their pricing structure to scale with the size of their customer’s company to anticipate that growth.
• A cloud storage vendor creates subscription packages with discounts based on the amount of storage purchased, making it easy for larger customers to get the best deal.
• A restaurant loyalty program rewards customer loyalty, encouraging former customers to visit more often and order more food when they do.
• An ecommerce seller finds that its customer lifecycle is cut short when discounts are available, so it reduces the discount to 10%, and customers begin to stay with the brand for longer with a higher perceived value of the product.

Monitoring Revenue Performance Metrics

Sales, marketing, and customer success teams contribute to a revenue strategy’s success or failure. They play a crucial role in determining the revenue-driving factors and identifying bottlenecks in the sales funnel.

For the most part, performance monitoring is automated through performance tracking tools.

• CRM: A customer relationship management (CRM) system tracks every interaction between customers and the company, including email open rates, website visits, and average time spent on a page.
• Web analytics: Tools like Google Analytics help companies track customer behavior on its website and measure the effectiveness of marketing campaigns.
• Sales data: Sales reports provide actionable insights into how well a company performs regarding lead conversion rates, CLV, average order value, and other metrics.
• Billing and subscription management: These tools provide an in-depth understanding of customer churn and work alongside the company’s sales platform to ensure accurate billing.
• CPQ: CPQ software helps companies personalize their pricing models based on customer data and preferences.
• Marketing automation: Depending on the chosen marketing channel, these tools track results and reflect them in other integrated systems (e.g., CRM).

Implementing a Revenue Strategy Through Technology Solutions

Technology enables every company’s revenue strategy—revenue management systems, CRM, and marketing automation tools provide the foundation of an effective revenue strategy.

Here’s a step-by-step process to implement revenue management systems in a company’s organizational structure:

1. Determine specific goals and objectives the revenue strategy should achieve (e.g., boosting revenue from a new product, reducing costs, or improving customer retention.
2. Understand the current organizational infrastructure and evaluate its suitability for achieving revenue goals. Assess its strengths and weaknesses and determine windows of opportunity.
3. Look for revenue management software that aligns with business objectives and integrates with other systems.
4. Set and continuously monitor revenue metrics and ensure the new system can track and report them.
5. Educate employees on the new revenue management system through workshops and training sessions to familiarize employees with the system’s features and processes.
6. Continuously monitor the performance of the revenue strategy and the new system’s effectiveness. Identify areas for improvement and refine the revenue strategy and system as necessary.

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