Thursday, January 05, 2006

Volume 17 - Revenue Streams

There are only three ways to increase Sales. Raise prices, Acquire more customers or Sell more units to present customers. Simple. No Magic.

Prices rise according to a variety of conditions including competitor's movement and where one sees his/her company from "40,000 feet"; in other words, where do you fit in the total spectrum of an industry. A future blog subject matter.

Acquisition of more customers is obvious; but, its formula of 'how' has always been the issue constantly being chewed over in sales meetings. Another future blog subject.

Sell more units to one's present customer base not only includes a company's present product line but also (R&D) future products to accomplish this feat. More importantly this includes accounting for each product and/or service as a revenue stream with its associated value or profit or margin and thus the theme of this Volume 17 blog.

Let's, first of all, dispense with some conventional wisdom which only enhances errors, myths and shortcomings of business today. Selling more units to one's present customer base DOES NOT mean to sell more of what the 'manufacturing people' can easily make. One might expect this to be obvious, but having been present in far to many meetings listening to 'manufacturing people' babble about what should be made, sold and at what price would scare a sane person not to mention make even the most neophyte in business cringe. So, a principle to accept (not to be debated for I have not the patience nor the inclination to dwell on shared stupidity) is that the 'Market' determines product, quality, fit, function, price, etc. 'Yep', you heard (read) it here. It's not Manufacturing, not Human Resources, nor Accounting determining what the customer wants or needs. It's a Market driven environment. The Customer makes determinate choices and you had better be in a position to fulfill those needs. The successful company has to run on execution and implementation with various revenue streams and not on 'pounds and pieces' and top-line revenue theorists junk thinking. It will always boil down to what customers really want/need. Customers don't care about trivial differences between brands. What they really want are quality products, reliable service, and a fair value for their money.

Why do most companies consistently fail to meet even these basic customer needs? It is because, they have no process of knowing how to meet and exceed the ordinary of customer expectations. Too many businesses have simply focused on the wrong things and haven't given this any thought or, at best, lip service. At the same time, it is just as important to make sure that one's company is financially successful and one of those financial responsibilities is to determine, monitor and adjust 'revenue streams' as it pertains to your products and the marketplace. It has been my assessment over many years that businesses, in general, when faced with price pressure and intense competition have gotten into the habit of 'giving away' valu-added services and, in some cases, not even realizing those 'give-aways' as potential revenue streams to begin with.

The solution therefore is to develop , market and account for each product (or category of products) and services that target unique segments with specific offers. This would entail developing a range of offers (products and services) from high GPM to low end and less margin. The key is to segment the market and build specific offers based on your unique ability to drive economic value within your own market arena via several revenue streams. To accomplish this one has to develop a correct market strategy that will take a deep understanding of the value driver for each market segment or revenue stream. Each will have its own associated pricing, costs and profit. Therefore each organization must create it's alignment and communicate the value of each 'stream' to the market place.

This is a fundamentally new approach and replaces, at least conceptually, the volume driven pricing model. And, while most would agree with this concept, it isn't readily accepted for most businesses, unfortunately, think consciously or unconsciously that their products and services are just basic commodities. It is my belief that even the most mundane of products, the most commodity intensive businesses can improve revenue, margins and profits by adopting a revenue stream strategy that targets and monitors not only a segmented market place but the specific products or services that drives that stream of endeavor. I would therefore argue that this approach combined with the previously mentioned quality of product, reliable service and fair value creates its own branding concept built on a solid foundation.

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