Do You Know Why You have Underperforming Revenue?
Many entrepreneurs jump to the conclusion that if they have underperforming revenue it must be a sales problem. While more times than not this is the case it may not be the only reason. I bring this up because if you focus on the wrong problem you could actual make your revenue situation worse. So first, make sure what’s causing your underperforming revenue before you start fixing the wrong thing.
A business is a systematic set of processes and procedures that feed one another. I refer to this as your “revenue engine.” The revenue engine is comprised of four major business functions – marketing, sales, delivery, and collections. Using this approach allows you to easily comprehend the complex dynamics of your business’ operation and cash flow using simple to understand terminology and calculations.
A limitation anywhere along this revenue cycle can cause underperforming revenue. This represents your revenue/cash flow cycle.
- Slow collecting on your invoices creates a revenue problem.
- Not delivering your product or service fast enough or to the needed volume you’ll have a revenue problem.
- If you can’t sell enough to keep your operation business you’ll have a revenue problem.
- If your marketing isn’t generating enough leads you’ll have a revenue problem.
Do you know you know where your revenue engine is misfiring? If not you may need a Revenue Engine Performance Checkup. Fix your revenue engine and you improve overall business performance which in turn improves revenue.
But, what if your underperforming revenue problem IS sales related? What do you do then?
Fixing Your Underperforming Revenue Using Sales Management 101
Determining where the problem lies within sales begins with sales management 101. That means “following the breadcrumbs that your business has left for you.” Problem is most small business owners don’t see the “breadcrumbs!”
You’ve probably heard the cliche “selling is a numbers game.” In fact, your sales can be 90% predictable if you systematically work it. This is what is meant by “selling is a numbers game!”
Start by understanding your sales funnel. Your sales funnel is the stages a lead goes through as it moves to becoming a closed sale. At a minimum your sales funnel should include:
- how many leads do you need to connect with?
- what number of those leads become real prospects?
- then how many of the prospects then ask for a proposal or quote?
- finally, how many proposals or quotes do you close that become contracts?
That’ your sales funnel! Do you know these ratios for your company? If not, then you’ve already identified one problem impacting your revenue and needs to be fixed and quick, or your revenue situation will not improve.
Reading our previous post Maximize Revenue by Selling Your Excess Capacity will help you understand how to do some of these calculations. If you need more help on how to calculate these ratios, contact DE, Inc. We have some simple tools that will show you how to figure this out using information that should already exist from your past sales.
Applying What You Have Learned
Do you get the idea of where to start here? What is your close percentage? Is it greater than 40% or less than 20%? If so, guess what, this is telling you something else that may be broke in you revenue engine. This is the point of tuning the revenue engine – pinpoint the problems and fix them. Fix the problems and improve your revenue performance!
Also, these ratios are leading indicators. That means they tell you things way before problems show up on your financial statements.
What if you saw a shift in the market when it happened? Could you do something about it if you found out about it 3 – 6 months before it showed up on your accounting reports? Only you can answer that for yourself, but this is the power of managing your small business systematically.
Can you predict your revenue and sales within 90% accuracy? That’s because you haven’t tuned your revenue engine yet! You should consider joining us for our next Tuning Your Revenue Engine Masterclass and begin apply this powerful management model to your business. Click the button below to find out more.