As 2015 comes to a close, many organizations are reviewing their 2015 numbers and making determinations as to what they would like to accomplish in 2016. One of the best ways to plan out your 2016 is to leverage the power of the revenue equation. The revenue equation is simply a mathematical formula that is used to determine what level of activity is necessary in order to reach your 2016 revenue goals.
Many companies set yearly goals without assessing what is necessary in order to accomplish those Houston business coach objectives. For example, a company may have a goal to increase sales by $1 million in the next 12 months. My question to that leadership team would be if that company has the sales team to generate that much more revenue. Are the operations in order to be able to handle the additional growth? Are the right people in place to make sure that the customer is satisfied with the product or service in such a manner that they keep buying from them?
Although the revenue formula is not the end all be all of business planning, it is the starting point to begin conversations as to what the revenue goal should be for the next 12 months. It is also a great spring board to discuss with your leadership team as tho what would prevent your goal from being achieved and begin conversations on what elements need to be in place to narrow the gap between where you are now and where you want to go.
The Revenue Formula
The revenue formula is a multiplication equation that factors in what variables make up revenue. Below is the formula:
Leads * Conversion Rate * Average Sale * Frequency = Revenue
The best way to use the revenue formula is to solve the equation for the variable “leads.” Before wee get too much further, an explanation of terms is in order.
“Leads” is defined as to how many people or businesses respond to your marketing message and are interested in having a discussion as to the products or services your company offers. “Conversion rate” is the percentage of leads that turn into customers. The variable “average sale” is the amount of money people or businesses spend with you each time they buy. “Frequency” is how often a customer buys from you. Finally, “revenue” is how much you want to sell in the next 12 months.
So, here is an example. Let’s say that your goal for the next 12 months is to generate $2 million in sales. Let’s also say that your average sale is $1,000 and your customers buy from you 8 times a year. For planning purposes, since most companies do not track conversion rate, we recommend using a 10% conversion rate. This keeps your planning conservative and on track.
Now, all we have to do is plug in the numbers and solve for the amount of leads the company must generate to achieve $2 million in sales. In the above example, the company needs to generate 2,500 leads per year to get them to their revenue goal. As a result of this , a company can ask the following questions:
- Do we have a big enough marketing budget to generate 2500 leads?
- Do we have a big enough sales force to follow up with 2500 leads?
- If we get all this new business, how can operations fulfill those orders?
- Based on our current staff, what developmental needs do they need to be able to meet the new demand?
- What are the gaps that we need to fill between now and our sales goal?
- What are the obstacles in achieving that goal?
- What is the financial risk in hitting that objective?
If you would like help with this, Cornerstone Consulting has developed the 30-Minute “Business Accelerator” which we conduct over the phone with you. Here is what we can accomplish together in this fast-paced, zero-nonsense session:
- Lead Magnet: According to the Harvard Business Review, less than 3% of companies in America can articulate their competitive advantage to their market. We will review your marketing material and make any modification necessary to attract more leads to your business, on demand.
- Revenue Boost: Frustrated by your sales numbers the past few years? We have helped hundreds of clients achieve an immediate boost to sales using one strategy that works like a champ every time. We will detail the strategy out for you in detail and create a roadmap on how to easily implement it.
- Increase Employee Performance: Are you frustrated by the performance of one (or more) of your employees? We will show you the two biggest motivators for your employees and how to use them to boost employee performance.
The 30 Minute Business Accelerator is conducted by the CEO of our company, Charles Alvarez, who has worked with more than 200 corporations including Shell, Enterprise Partners, Crestwood Midstream Partners and many well-known privately held businesses in the Houston area. Please be assured that this consultation will not be a thinly disguised sales presentation; it will consist of the best intelligence Charles can supply in a thirty minute time span. There is no charge for this, but please be advised that the call must be strictly limited to 30 minutes.
To secure a time for this consultation, please click here to access our calendar to schedule your time. After you select a date and time, we will provide you with a pre-consultation questionnaire that will prepare both you and us to get you the maximum value in the shortest amount of time.