The Science of Revenue Optimization

Profitable revenue growth is one of the most important drivers for increasing a company’s valuation. When demand is strong and market conditions are favorable, growing top-line revenue may not seem so challenging. But even high growth companies hit occasional hurdles when markets weaken in specific regions or customer segments. Moreover, even if your revenue generation is strong, it is worth considering whether your company is capable of reaching even higher growth rates.

There are those who see revenue growth as an art—e.g., allowing experienced sales reps the freedom to apply their talents. This may work in some environments, but the real test is in achieving sustainable profitable revenue growth on a consistent basis even in a scaled environment where the volume hurdle becomes increasingly more challenging. It is much easier to grow 20% from a $50 million revenue base than from $500 million in sales.

We would argue that profitable revenue growth is also a science involving the disciplined optimization of a company’s “revenue engine.” The performance of this engine can be measured and improved by adjusting certain levers—changing sales and marketing processes, fine-tuning pricing, upgrading talent, expanding distribution channels, focusing on higher potential prospects, improving sales messages, introducing new sales tools and many other actions.

Finding the right points of leverage for accelerating revenue growth requires examining the revenue engine through two lenses—the company’s internal lens and the external market’s lens. The external lens can be particularly important since this is a view not often seen by the executives of a company. Important perspectives on revenue engine performance can be obtained from current customers, recently lost customers, lost prospects, targeted customers, channel partners, former sales associates, industry experts and even competitors’ sales reps.

Asking the right questions and gathering the most useful information is the first step. Some companies are able to gather this information from the market themselves while others have discovered that external market sources are more candid and more willing to share important insights when speaking with a third-party. There are several consulting firms and experts that can be helpful in revenue optimization.

Blue Ridge Partners, a firm noted for their expertise in revenue optimization, has developed a methodology called The Nine Voices of the Market™. They use this methodology, along with a revenue engine scoring system called 100 Behaviors of High Performing Revenue Engines™; to define weaknesses in a company’s approach to revenue generation. Blue Ridge Partners evaluates revenue engine performance in the following categories:

1. Setting the go-to-market strategy - In the eyes of customers, how well positioned is the company relative to its competitors? Are there new product/service lines, customer segments or geographies that should be pursued (or exited)?

2. Generating new leads / optimizing the win rate – Is the sales force generating the right volume and quality of leads and how effectively are they in allocating their time and closing the most attractive of these leads? Does the company know why they win and lose? Are distributors, agents, channel partners and referral sources performing to their potential?

3. Pricing effectively – is the company intelligently and competitively pricing its products/services? How often is pricing reviewed to maximize opportunities and profitability?

4. Sales process efficiency - Are leads moving quickly through the pipeline to maximize responsiveness to prospects and to optimize sales force productivity? Can internal processes be improved for greater efficiency?

5. Retaining customers and penetrating existing customer relationships - Does the company effectively retain its most profitable and strategically important customers? Could more be done to increase “share-of-spend” from current customers?

6. Motivating the sales force and minimizing turnover - Is the sales force properly structured, supervised, sized, skilled, allocated and motivated?

7. Monitoring revenue engine performance – Does the company effectively measure each critical component of the revenue engine and are these metrics used to predict problems before they surface (rather than reacting to performance surprises)?

When we conduct due diligence on a new investment, we explore many of the issues above to better understand current revenue potential and future business prospects. We share our insights with our management teams to help them in refining their sales/marketing strategies as part of their overall growth planning. This evaluation process must be ongoing in order to determine the best ways to optimize revenue growth. Moreover, measurement systems, performance dashboards and sales pipeline analysis tools are necessary for real-time and forward looking analysis. For more information about revenue optimization and further exploration of key leverage points for revenue growth, please consult your GA team.