How to Calculate and Strategize Revenue Growth

Growing your business is not easy.

You need to focus on so many metrics and go back to the drawing board, again and again, to understand whether you need to concentrate on sales, marketing, customer satisfaction, preventing churn, or all of them simultaneously.

You can do all of this at once if you track your revenue growth manually or through revenue management software.

Sales and earnings are not revenue, and they are different from each other. While sales refer to the money made from selling products or services, they don’t consider expenses. On the other hand, earnings refer to the difference between revenue and expenses.

Revenue is the total amount of money made from every source, such as sales, investments, royalties, and charges. Revenue growth doesn’t take expenditures into account.

Earnings growth vs. revenue growth

Earnings growth is the rate of annual earnings from cash investments, inventory equipment, property, and payroll.

Investors leverage average earnings growth to determine whether a business is worth the investment. With earnings growth, the more, the better. It’s one of the most crucial growth indicators for a company since it makes its health and profitability evident.

Revenue growth is the annual increase in revenue from the total sales in a company. Revenue growth indicates sales health and assesses how good a business is at selling its product or service.

Why is revenue growth important?

The primary goal of any business is to generate revenue. Companies can make their money back and still be classified as “dying” if they don’t generate growth. Why is it essential for your business to grow its revenue? Let’s look at some answers below.

Profits

 The driver of your profitability is revenue. The more your business generates revenue, the more gains you will witness. You can generate more profits to boost revenue growth. This can help you reinvest, create revenue sources, acquire businesses, and strengthen the value of your business.

Potential

Company valuation is an essential factor in your business growth. You can make better decisions in the future through the value others assign to your business. For example, with a reasonable business valuation, you can secure investments, sell your business, buy another company, sanction a bank loan, and even take your business public. Since investors consider this a significant factor, revenue growth is a solid indicator of your business' potential and valuation.

Clients

The mere fact that a customer prefers your product or service to another is a testament to its value. Holding on to clients is tiresome work, and acquiring new ones is more challenging. It's all about the value your product or service provides and instilling confidence in your prospects to buy from you. Solving your customer's problems is paramount and a key influencer of revenue growth.

Internal tweaks

Internally, hiring new talent and holding on to gifted ones is essential. Every business needs to employ loyal employees who will stay for the long haul and hire ones to fill every business gap. Employee satisfaction is also a critical factor in improving revenue growth. Keeping employees happy means better output, and better work translates to improved revenue for your company.

Revenue growth formula

The revenue growth formula, also known as the revenue growth rate, calculates your annual growth. It compares the revenue from the previous period with the current period. Each period needs to be equal in length. For example, this month versus the last, or this year versus the previous. You shouldn’t calculate this month’s revenue with last year’s.

How to calculate revenue growth rate

Here is the formula for forecasting revenue growth:

Calculate the revenue growth rate by subtracting the revenue from the first month from the second month. Divide the result by the first month's revenue and multiply it by 100 to turn it into a percentage.

For example:

If your revenue last year was $500,000 and the revenue this year is $1 million, then your revenue growth is:

[($1,000,000 - $500,000) ÷ $500,000] x 100

= 100%

This formula can calculate quarterly, monthly, and yearly revenue growth. The formula provides both negative and positive changes in revenue growth. Negative changes signify losses, positive changes represent growth, and zero changes mean no revenue growth.

Revenue growth channels

Your company can grow its revenue from multiple paths, and there is no standard channel to increase revenue. From email marketing to discounts, here are different channels you can leverage to increase your revenue:

• Upsell and cross-sell: Focus on selling to your existing customers instead of trying to acquire new ones. If you sell multiple products or services, try to bring your current customers on board to try out your other products. With existing customers, you don't need to worry about brand visibility since they are already acquainted with your brand. 
• Sending emails: Marketing emails are one of the best ways to grow visibility for your business and increase revenue. Email marketing helps you gather a large audience for your product. Additionally, sending emails that stand out can help grow your revenue. 
• Organizing giveaways: You can organize handouts such as referrals and loyalty bonuses. It helps current customers become more dedicated to your brand and helps bring in new ones seamlessly.
• Freemium strategy: Every product these days offers its basic version for free. It helps increase product awareness, and many customers would pay if they could see the value. 
• Content strategy: Regularly publishing relevant and high-quality content can increase your audience, resulting in revenue growth. While you would need to spend a lot of time initially on research, you can gain massive brand visibility once you execute it right.
• Other marketing strategies: Apart from email and content marketing, you can use different marketing strategies for revenue growth. One of the more popular options is pay-per-click advertising, where you can target popular keywords and place advertisements in tactical places. You can also customize advertisements to target specific customers. Another way is to use your website to ensure visitors can quickly find what they want. Social media marketing is also great for boosting brand awareness on popular platforms such as Facebook, Instagram, Twitter, or even LinkedIn. 
• Different selling strategies: Bundling different products and targeting them to specific segments can be helpful to new and existing customers. If you have a retail store and customers that buy milk from you regularly, you can offer them subscription plans at discounted prices. Another example is if you are selling raw materials to a buyer who purchases them from you regularly, you can ensure that they stay loyal to you through bundles or even introducing samples of different raw materials to them for free. 
• Optimizing sales:  Grow, optimize, and repeat! Your sales team's efficiency increases as you build a larger team and split it to cover different regions, segments, and products. For starters, you could split your sales team to cover inbound and outbound sales and create sub-teams. Another idea is to clearly define the differences between the sales and the pre-sales team to avoid overlaps and confusion in responsibilities. 
• Changes to price: Every business implements changes to its pricing, whether a software company or a materials vendor. Are you an established player in your segment? Go ahead and tweak your prices. It's sometimes okay to change your pricing, experiment, analyze the results, and take the next step. 
• Contract revisions: Another potential revenue growth channel is simplifying changes to contracts. You can introduce improvements to processes such as automated decision-making, negotiations, and modifications to delivery capacities. 
• Fixing revenue leaks: Pre-emptively identifying and stopping revenue leaks. You can curb revenue leaks through automation software and take stock of business operations that could negatively impact your revenue.

Revenue growth strategy

 A revenue growth strategy is a roadmap for revenue increase over both the short term and the long term. Revenue growth strategies need to be implemented proactively – don’t wait until there's a problem. If you do, you’ll have to implement an emergency strategy that focuses more on cutting costs than revenue growth.

The best strategy for business owners is to ensure that all teams work together efficiently to impact short-term revenue and, eventually, annual revenue positively. However, here are some specific strategies to increase revenue growth:

Organic revenue growth

Capacity expansion is the primary focus of organic revenue growth. Although slow-paced, it's one of the safest ways to boost a company’s revenue and achieve sustainable growth. Some examples of organic revenue growth are product promotions, incentives, new marketing methods, brand awareness strategies, modified pricing strategies, new features, modified pricing tiers, and discounts.

Inorganic revenue growth

Inorganic revenue growth focuses on mergers and acquisitions (M&A) to generate more revenue. It’s a faster way to generate more revenue. M&A businesses, in some cases, double or triple their clientele and gain faster market share through increased customer acquisition. M&As involve some risk since there could be management and culture clashes.

Employee motivation

Your company can reach greater heights and generate more revenue by providing your employees with opportunities for professional development, so they are inspired and prepared to do their best work. When your employees are motivated, their churn rate reduces, and they’re more receptive and adherent to new methods. Churn needs to be your primary key performance indicator (KPI). Churn from both employees and customers can negatively impact your revenue growth.

Develop new products

Companies strive to develop new products or offer new services to improve sales, profit margins, and revenue. How can you do this? Identify and test potential options. Take Apple, for instance. Going from a computer manufacturer to one of the recognizable names in the mobile devices industry, Apple has come up with new products and services for customers. These countless options help destroy the fatigue factor for customers and allow them to be genuinely excited and invested in new offerings. Be it products such as the iPhone or MacBook and services like iCloud and Apple Music, they offer the perfect set of products and services that keeps customers inside a single ecosystem.

Explore new ways to reach customers

Finding new ways to reach your existing customers is imperative. Your outreach methods won’t work if the marketing, sales, and customer experience teams don’t work together.

You can write blogs, schedule nurture email campaigns, and social media campaigns, from customer retention strategies to increasing conversions to social media, or even use paid marketing.

Leveraging technologies

Using the right tools and technologies helps improve employee efficiency, which translates to increased revenue. You can find solutions that help you automate processes, speed communication, eliminate siloed communication, and manage customer relations.

Some tools that can help you do this are team collaboration tools, customer relationship management (CRM) solutions, and marketing automation software.

These strategies can positively influence your income statement, but you must strategize the right way.

Considerations while looking at revenue growth

Analyzing revenue growth and calculating revenue growth rates don’t primarily imply new ways to bring in money through various channels. It’s best if you examine your company’s financial statements to determine which internal processes or initiatives promote revenue growth, which factors decrease revenue, and how your long-term plans shape up.

Lots of factors negatively impact revenue growth, and it’s essential to figure out what they are and put a stop to them.

Here are some common factors that negatively impact revenue growth: 

• Resource utilization: Every task and project in your company requires a specific set of resources, and incorrectly utilizing them causes problems. You must effectively divide and assign the right people for tasks to ensure they are perfectly completed. If not, it can negatively impact your company's growth and, ultimately, your revenue. Instilling a data-driven approach and ensuring your employees stick to company values every step can help you make a significant impact.  
• Value: Do customers prefer specific plans of your product to we others? Is your premium plan priced highly with less functionality? Does it get selected less often than others? Go back to the drawing board to understand why your customers like one plan versus another. 
• Onboarding experience: Go to your onboarding playbook and determine whether customers get all their queries solved. If customers have a problem and it doesn't get solved during this process, deal with it immediately instead of waiting. This ensures customers don’t abandon your product even before using it. 
• Ineffective strategy: It's easy for your product or service to derail from its original strategy, many steps along the way. However, as simple as it may sound, you need to always keep your eye on the end result, which is ensuring customer satisfaction and definitively addressing their pain points. Have you made a promise to make something better? Don't stop until you implement it. 
• Customers leaving: Customers opting for another solution always has a negative impact on revenue growth. You can analyze and understand the reasons for customer churn, optimize it using customer success software, and maintain a healthy level of revenue growth. 
• Ease of use: How user-friendly is your product? Do consumers complain about certain features? Does it get updated regularly? These are some questions you need to consider about your product. Think from a user's perspective to prevent gaining more users. 

Revenue growth FAQs

Here are some of the commonly asked questions related to revenue growth answered.

What is revenue growth management?

Revenue growth management is a strategy that aims to maximize a business’ revenue continuously. It requires access to real-time insights that help identify problems and opportunities, act upon them, and measure their impact immediately.

What is a good revenue growth rate?

A good revenue growth rate for a company depends on the economy's growth rate. For example, if your economy has a growth rate of 2 to 4%, your company needs to have a revenue growth rate of at least 5%. This isn’t always the case, however. Companies often grow at over 100% in the startup phase.

Are revenue growth and sales the same?

Revenue growth and sales are not the same. Sales are the numbers associated with selling products and services, while revenue is the income from sales, investments, charges, and other sources.

What is quarterly revenue growth?

Quarterly revenue growth measures the increase in a company’s sales in one quarter compared to previous quarters.

Dealing with slowness

Is slow revenue growth all that bad? No. The market changes every day. There’s lots of competition, and customers can change their minds on a whim. Regardless of the industry your company serves, it’s crucial to analyze your sources of revenue, make predictions for upcoming months, and initiate new strategies to increase revenue.

As mentioned above, revenue growth shouldn’t be a reactive strategy implemented whenever you sense danger. It needs to be spread out proactively to reap maximum benefits.

Profits shouldn’t be beneficial to only a company. Learn how revenue sharing is done to make shareholders, employees, and stakeholders happier.