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Monitoring Revenue Growth: A Step-By-Step Guide

by Staff

You can’t evaluate business performance without tracking metrics. Tracking metrics allows you to measure your business’s performance against set objectives, and take corrective measures if objectives aren’t being met. But with so many metrics to track, keeping track of all of them can get overwhelming. So, which metric should you prioritize?

This post examines why you should prioritize revenue growth over other metrics and steps you can follow to monitor revenue growth.

What is Revenue Growth?

Revenue growth is a measure of your company’s income between two periods. For example, the amount of money your company generated this year compared to last year.

While it’s often confused with sales, revenue isn’t limited to sales. Revenue considers income from various sources including sales, patents, royalties, licenses, fees, and more.

How to Calculate Your Revenue Growth

You can calculate revenue growth by comparing your company’s current revenue with previous revenue. As a rule of thumb, the periods that you’re comparing should be the same length. For instance, you can compare revenue from year to year or month to month.

To calculate revenue growth, you can use the revenue growth formula below:

Revenue Growth = Revenue this period – revenue last period

Thus, if you earned $50,000 in revenue this month and $25,000 last month, your revenue growth would be $25,000.

Alternatively, revenue growth can also be expressed as a percentage. It can be expressed as a percentage using the formula below:

Revenue Growth = (Revenue this period – revenue last period) / Revenue last period

Thus, using the same example above, here’s how you would calculate your percentage revenue growth:

($50,000-$25,000) / $25,000

This results in $25,000 / $25,000 = 1

Expressed as a percentage, then your revenue growth is 100%.

How to Monitor Revenue Growth

Now that you’re familiar with what revenue growth is and how to calculate it, here are steps you can take to monitor revenue growth and improve it:

Measure Product-Market Fit

First, you should assess whether your product fulfills market needs. Ideally, your product should address and solve the needs of your target market.

If you discover that a significant number of people are purchasing, using, and telling others about your company’s product, then it satisfies market demand.

You can measure product-market fit in various ways. Repeat purchases, referrals, and a number of active users are some common ways to measure product-market fit.

Using the insights gained from measuring product-market fit, you can then see how to improve your offerings and improve revenue growth.

Implement a Go-To-Market Strategy

Once you’ve established your product satisfies market demand, you’ll need a robust go-to-market strategy. At this stage, you should choose an effective sales model and create a sales and marketing system that retains and attracts customers.

When implementing the go-to-market strategy, consider customer personas and marketing channels. Your business shouldn’t target every customer. Ideally, it should target the customers who will derive the most value from your product. Additionally, you should pick a suitable marketing channel. When picking a channel consider the channels your target customers use and your budget.

Overall, you’ll want a go-to-market strategy with a good Customer Lifetime Value to Customer Acquisition Cost (LVT:CAC) ratio. If you establish that you’re spending too much to acquire customers, you may need to reevaluate your go-to-market strategy.

Scale

Finally, once you have product-market fit and a solid go-to-market strategy, you can scale your business. However, scaling is a marathon, not a sprint. So, don’t scale too fast even if you record excellent performance.

For instance, if you want to scale by boosting sales, you’ll need to hire more sales representatives. But don’t recruit many representatives at once. Instead, recruit a few and monitor performance (e.g., two per month instead of twenty in a day).

Picking a Revenue Growth Platform

Figuring out how to effectively measure business performance can be challenging. But by tracking revenue growth, you can effectively measure how your business is performing.

Need help tracking revenue? Revenue growth platforms like SharpSpring can help you track and build revenue. Partner with them and learn how their services can help you scale your business.

Main Photo by Lukas.

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