Manage revenue and sales
Once you understand the basics of making a profit and the strategies available to increase your profits it's important to understand how to manage your revenue. This is a key component in making and increasing profits in your business.
The most effective way to do this is to create a revenue strategy, with measurable objectives that can maximise both your short-term and long-term profits.
How to develop a revenue strategy
One of your top priorities as a business should be to increase revenue. A revenue strategy is a plan that focuses your business on increasing revenue over short and longer terms.
Consider these areas when developing your revenue strategy. Organise the information into a structured revenue strategy, expanding into further detail as you go.
Ensure your revenue plans match your vision for your business.
Have a clear understanding of your business's:
- vision (future aspirations)
- values (principles, aspirations, beliefs, standards of behaviour)
- mission (culture, values, ethics)
- strategy (plans, actions, goals).
Make sure these align with all areas of your revenue strategy.
Be clear on how your product or service delivers 'customer value'. To do this your business should meet at least 2 of these 3 conditions:
- low price (compared to competitors)
- high quality
- convenience (this includes local suppliers that are accessible 24 hours a day, 7 days a week, or able to supply within a very short timeframe).
- Identify key performance indicators (KPIs) to help you track your revenue performance. Make sure these are achievable and measurable.
- Use relevant research and evaluation tools to assess your results.
- Assess if your current sales levels are achieving your revenue objectives. If not, identify ways to increase your sales to help you grow your revenue.
- Review your cash flow, profit levels and margins.
- Evaluate how successful you are at controlling your costs.
- Assess if there are any opportunities in your existing market (or a new market) that your business isn't taking advantage of right now.
- Review your customer base to analyse how your business attracts and retains loyal customers who generate repeat business (refer to your customer value).
- Identify any barriers that are stopping you from meeting your sales and revenue objectives.
- Evaluate your 'bottom line' performance (actions that decrease your overall profit) and return on investment (ROI) against key competitors and industry benchmarks.
- Think about how to grow investment sustainably across your business (including production and marketing aspects) if you're aiming to grow your operations.
- Consider if your current internal structure needs realigning to better suit your operations or to meet your revenue goals.
- Assess capacity and capability within your business, including the skills you need to maximise your revenue.
- Develop flexible business review processes so your strategy can be adjusted when needed.
- Clearly define your sales and revenue processes and review them against your objectives on a regular basis.
- Think about the sales and marketing approach you'll need to achieve your overall business goals. Make sure these align with your business values and vision.
- Review how your business interacts with customers and develops relationships – this ensures a unified approach from initial lead generation through to evaluation and analysis.
- Ensure your staff understand the revenue cycle and sales process.
- Review your sales processes (both a high level review, and a breakdown and assessment of each stage of your sales process).
How to use revenue strategies
When reviewing revenue strategies, take advantage of your team's skills and knowledge by incorporating their ideas, perspectives, and experiences. Be open to all contributions – it's not just key decision makers who should shape your sales processes and revenue strategy.
Taking advantage of new technology can make a big difference to your overall profitability and is a critical part of developing a revenue plan or strategy.
Technology can be used in a variety of ways to increase revenue, including:
- automating your sales process
- social selling tools for marketing
- reporting and analysis software which measures your metrics
- web conferencing tools for developing relationships with customers and suppliers
- data scraping tools for competitive analysis
- task management tools for increased productivity.
It's important that you do your research and identify the potential of new technology and tools to add value to your net income.
Regardless of which technology you decide to invest in, make sure it adds value to your revenue strategy, and that it saves you either money, or time (ideally both). Technology investment can be viewed as either a cost reducer (e.g. automation), or revenue creator (e.g. social media marketing).
Having a clear picture of your target markets and trading environments (competitors, innovation/trends, overall economic outlook) is central to having a successful revenue strategy. Remember that markets often evolve, customer expectations change over time, and the competitive landscape is dynamic in most industries.
You should frequently review the market as part of your revenue strategy, and not view this research as a one-off task when you start up. Not adjusting your strategy over time as the market evolves means your strategies will quickly become outdated.
Reviewing the market means understanding 3 key concepts:
- Your customer: Who your customer is, what motivates and drives them, what problems they need solved, and what they're willing to spend their money on.
- Geographic scope: Local issues which may impact your sales; for example, if you sell to the global market, you'll need to understand global market trends, currency fluctuations, trade relations and geopolitical factors. If you sell locally, you'll need to stay on top of local issues which may affect demand.
- Competition research: By doing a competitive analysis of your industry you can position yourself strategically within your market; you can include a broad range of strategy from pricing to marketing and potentially improving the quality of your products and services.
Forecasting is a tool that every small business should use for projecting future revenue. This allows you to estimate how your profits are likely to develop over a specific period of time. Your estimates will be based on historic data, present sales, and external factors which are likely to impact revenue and demand.
Your revenue strategy should be constantly reviewed, adjusted, and updated, and so should your forecasting. This will give you an ongoing awareness of how emerging trends, impacts, and developments are affecting your future profits.
Forecasting is a proactive approach to planning, so you can maximise your opportunities in advance, and be ready to take advantage of, or pivot away from, upcoming opportunities or impacts.
Learn more about forecasting.
Pricing can make a huge difference to your ability and potential to drive profits, and it's important to set your pricing strategically once you have a clear understanding of your target markets.
From the data collected in your market research, identify and define a spending profile for your ideal customer. When creating this customer profile, think about your customer value and consider:
- What is their disposable income?
- What is their spending habits?
- What do they expect to pay?
- What is their perceived value of your product or services versus the cost?
- When do they make purchases?
- How do they make purchases?
- What do they see as 'convenience'?
- What influences and affects their purchasing decisions?
After thinking about the above questions, develop a price point for your products or services and consider your ideal profit margin. You could also develop a profit margin range, which starts from the lowest possible price you could offer while still making a profit, through to your most ideal price point. You can then use this range as your scale to know how much you can adjust, if you then choose to offer discounts, sales, or experiment with changing your prices.
If you identify that you have customers across different segments, develop a spending profile for each, and target your price/offering to each segment in a way which makes the most sense to that particular customer.
One approach won't always fit all and segmenting your customer base allows you to optimise your marketing which may perform better with different markets, increasing your revenue among segments of your customer base which haven't previously performed as well as others.
Learn more about pricing your products and services.
An important aspect of your revenue strategy is how you manage your revenue.
Revenue management helps you to take full advantage of your business potential by using information and data as a decision-making tool to avoid missing out on opportunities.
Effective revenue management means making the correct business decisions at the right times to maximise profits. For example, selling the right products to the right customers at an efficient cost to your business.
Revenue management tools include using performance data and analytics to achieve sustainable revenue patterns, and which allow you to grow your business.
Useful sources of data include:
- your business's previous performance data
- current sales data
- industry or sector insights and performance data
- other benchmarking data.
Once you have a strategy in place, continue to adjust and optimise your processes as industry trends change and to stay ahead of the competition.
Forecasting to support revenue management
Forecasting is a major part of revenue management which allows you to adjust your revenue strategy to respond to upcoming trends and changing customer need and demand.
Forecasting is about predicting your income and sales against factors like business costs and market demand over a set period of time, in order to estimate your profits. Predictions are made based on past and present data (e.g. your most recent financial statements), as well as monthly or yearly trends (e.g. seasonal fluctuations in demand). Aim to make your figures as accurate as possible so you have a roadmap you can use to help with strategic thinking and decision making.
Your forecasting process should be continually adjusted to align with evolving industry trends, changes in sales figures or income fluctuations, disruptions or major changes in the economy, or new business competitors. It allows you to make carefully planned business decisions based on the most likely results and profits.
What to know when forecasting
To forecast as accurately as possible, it's important to follow these steps.
- Define the period of your forecast – most business forecasts are monthly.
- Collect past financial statements – the most accurate way to predict future sales is to use the data you have from existing trends because historic data tends to repeat itself. To make this easier in the future, keep accurate records around your pricing, sales, and revenue cycle, and keep them accessible for later reference.
- Incorporate the impacts of future events you know will affect your sales, especially if these trends haven't previously affected your historic data. You should pay attention to industry trends, and how developments in the areas of politics, economics, social, and technology could impact your market.
- Research and analyse revenue trends that include commercial and non-commercial events, for example:
- public holidays
- weather events
- local events (e.g. concerts, sports games)
- political decisions (e.g. changes to taxation laws, travel restrictions).
- Include all future cash inflows, remembering that cash flow (e.g. loan repayments, selling an asset) may not be tied to sales, but should still be positioned in your forecasting.
- Continue to adjust and update your forecasting as you go, so that it remains accurately aligned to the dynamic changes your business may encounter.
- Review your forecasts against your actual revenue, so you can confirm if it aligns with your initial predictions at the start of the period.
- Read more about financial statements and forecasting.
- Find out about how setting sales targets can boost your profits.
- Learn how to find new customers to grow your sales.
- Last reviewed: 20 Dec 2021
- Last updated: 20 Dec 2021