What do revenue drivers mean?
Revenue drivers are the things that bring in money for a business. These can be goods, services, activities, strategies, and markets. Anything a business does to bring in more money can be called a revenue driver.
Every business’s primary goal is to make money, and its primary sources of income make that possible. Key performance indicators (KPIs) like sales volume, market share, conversion rate, and growth rate help businesses determine how a specific income driver affects the bottom line.
When businesses track these KPIs, they can see how well each source of income is doing and what changes need to be made to make them more successful. To fully understand how profitable each source of income was, they would then look at its cost drivers, which are the things that affect the cost of goods sold, the cost of running the business, and the cost of marketing.
In short, revenue drivers are the main ways a business makes money. Those are the factors and inputs that comprise a revenue model’s core.
Like words
- What drives a business
- What causes revenue growth?
- Salespeople
Why revenue drivers are essential for financial modeling
Financial modeling is used to predict how well a business unit, team, or project will do by managers, leaders, and investors. Seeing how much money they have now and in the past helps them plan for the future.
Drivers are fundamental to this process because they are the direct factors that cause its income to grow.
Various ways to make money
Businesses use three main types of income models: subscription-based, advertising-based, and product/goods (transaction-based).
Advertising: Businesses make money by putting ads on their websites and apps. The number of ad views, click-through rates, and cost per click are some of the most critical factors that affect how much money the advertising model makes.
Subscription: People pay a set fee (every month or yearly) to use a product or service. The number of subscribers, the rate at which customers stay with the business, and the average subscription price are the main things that bring in money for subscription businesses.
Transaction-based: Companies make money from one-time jobs or online sales of goods. The number of transactions, the average transaction value, and the conversion rate are all essential revenue drivers for this strategy.
The market a business is in has a lot to do with how its revenue model is set up. However, most businesses use more than one model to handle different sources of income.
Utilizing financial models to comprehend what brings in money
Businesses depend on correct revenue forecasting to help them plan their long-term goals. They need to know how the different parts work together to do it well.
Let’s say that a business-to-business (B2B) maker for swimwear brands sees changes in their revenue over the year. For example, their revenue rises by 20% to 30% year-over-year in the summer but drops in October.
Since more people buy swimwear in the spring and summer, it’s pretty clear that this is a yearly issue. But it doesn’t tell you what to do, which isn’t what a financial model is for.
So, it’s essential to figure out what the primary sources of earnings are and how they affect the performance of a business. Why do sales go down in October? Is it because customers want different things or because the market is becoming more competitive? Or did something go wrong with the internal sales process, too?
When a company knows the answers to these questions, it can take steps to make the most of future revenue sources.
Trying out different drivers to see how well they might work
Businesses need to find, test, and track KPIs to accurately judge each cause’s effect. In the case given, that could mean:
- Trying out different marketing strategies to see which ones work best with people
- Keeping an eye on the average transaction amount and number of transactions to see if they change with the seasons
- Keeping an eye on the customer retention rate and the churn rate to see if there is a possible loss of trust
- Take a look at the acquisition path to see if any problems are stopping customers from converting
So, instead of saying:
“Our sales rose by 30% year over year.”
What analysts can say:
“Our sales have gone up 30% since last summer, and we can do X, Y, and Z to make them go up by 40% this summer.”
Example of a Key Revenue Driver
There are different income drivers because they affect many parts of a business’s main idea. Most can be put into five groups: income drivers led by operations, marketing, pricing, leads, and sales.
Revenue Drivers Led by Operations
Operations-led revenue drivers are tasks or actions that bring money by making things run smoothly inside the company.
Efficiency in Operations
One of the best ways to bring in more money is to make the business run more smoothly. This is because it makes the money go further within the company, making it more profitable.
Some things that could bring in money for business efficiency are:
Utilizing automation and AI to lower the need for manual work
Streamlining methods for managing orders to make them run more smoothly
Faster reaction and resolution times will improve customer service.
Operating efficiency revenue drivers are thought to lead to more sales, not just a better profit margin.
One way to make customers happier is to make customer service more efficient. In turn, this makes a customer more valuable over time, which makes them spend more.
Chain of Supply
Getting inventory, filling orders, and sending them are essential to the supply chain. When these processes run more smoothly, their prices decrease, meaning the business makes more money.
A source of income in the supply chain could be:
- Automating purchase orders to cut down on data entry
Getting better deals from suppliers to lower the cost of materials
Work with third-party transportation companies (3PLs) close to big markets for faster shipping.
These, like operational efficiency, do more than just cut costs; they also improve the customer experience and help people buy more.
Making a new product
Product development is the first step in the engineer-to-order method. New goods or innovations can capture More of the market, which can bring in more money.
One thing a company might do is
Add more features to current product lines to make them better.
Release new items that are aimed at various groups of customers.
Create unique options for specific customers in their field
Companies that depend on product-led growth depend on development to bring in a lot of money.
Revenue Drivers Led by Marketing
Marketing drivers get more people to know about a product or service to boost sales. Among them are:
Advertising: To reach more people, you can run internet ads, TV campaigns, or out-of-home campaigns.
Having a social media presence: getting people to know about your business and connecting with possible customers.
Content creation means making unique blog posts, movies, infographics, and podcasts that teach and interest people.
SEO means making the same material as above but with the added goal of doing well in search engine rankings
Email marketing: sending drip campaigns, newsletters, and deals to current and future customers
Discounts, freebies, and other incentives are used in advertising efforts.
Revenue drivers that come from marketing are essential because they can be scaled up or down and A/B tested. It takes time to set up many other types of income drivers, but marketers can answer questions like
“What if we changed the picture in this ad?” Would it get more people to click?”
Or:
“What do you think Target Audience X and Target Audience Y would do in response to this campaign?”
They can also answer them a lot faster than in other areas.
Businesses need to keep track of metrics like media impressions, lead quality, conversation rates, and customer acquisition prices to see how well their marketing sources bring in money.
How to Set Prices
A company with a good product-market fit can increase sales and set its items apart by optimizing its prices.
Pricing drivers bring in a lot of money because they affect both the number and quality of sales. For example, a business might raise the price of a good to make more money, or it might drop the price to get more of the market.
Some examples of things that affect prices are:
- Programs that reward customers for being loyal
- Price structures with levels
- Deals on large orders
- Subscriptions and recurring methods of making money
- Changing prices (like Uber’s rush fees)
- Loss leader prices
Companies need to think about how customers think when setting prices. How much are they willing to pay for the product or service, and what makes them more likely to buy it?
It takes more time and trial and error to determine if a pricing plan works than with other revenue drivers because customers have to buy the product or service.
Get Leads and Referrals
A lead is someone who is not yet a customer. Leads can come from sales, marketing, price, or products or from people who tell you about the business.
- These places can give you leads:
- Word of mouth, such as customer recommendations and brand champions
- Attend events and webinars
- Inbound marketing (e.g., SEO, ads)
Sending emails to other people
Businesses must focus on qualifying and nurturing leads to get the most out of leads and recommendations. When both of these steps are done correctly, sales go up, and customers stay, which leads to more money coming in.
Revenue Drivers Driven by Sales
Like marketing, sales-led drivers bring in much money for many businesses. Without a sales force, marketing would be the only way to get people to buy from you.
Line of
The sales pipeline is where it all happens when it comes to business-to-business. This is how companies make money. Usually, a successful pipeline has these key steps:
- Qualification for lead. A sales team member checks leads that come from cold outreach, recommendations, and other sources to see if they are likely to work.
- A sales pitch. At this point, the salesperson meets with the customer to discuss their wants and show them possible solutions.
- Offer or quote. A sales team member makes a plan or quote once the customer has shown interest.
- We are talking things out. Salespeople talk back and forth with possible customers to ensure that all of them are on board with the deal and to work out the specifics.
- Ending. When the customer agrees to buy, someone from the sales team seals the deal by agreeing to all the terms.
Sales managers monitor the number of leads, the close rate, the size of the deals, and the usual time it takes to close a sale to see how well their sales pipeline is doing.
Number of Sales
How much are people buying?
Companies need to monitor their sales rate to determine what brings in the most money. They use it to see patterns in how much money customers spend, such as how often they buy and what kinds of things they buy the most.
Then, they can use it to ensure their money is best spent, invested, and sold in the areas and product categories that show the most promise (or room for growth).
Recurring Income
Any money a business gets regularly, like once a month or once a year, is called recurring income. Among these are:
- Subscription income
- Paying a deposit
Fees for licenses and royalties
Recurring revenue is crucial because it gives businesses a steady cash stream. Also, you can better plan your cash flow if you know how much money will come in every month or three months. Plus, it lets companies focus on keeping customers happy and satisfied instead of just making sales.
How to Keep Customers
Keeping customers brings in more money because it raises lifetime value (CLV) and turns some customers into brand ambassadors.
Businesses should keep current customers interested in loyalty programs, sales, personalized emails and content, and personal help to keep them as customers.
Data is also helpful in keeping customers because it gives businesses information about how their customers act and what they need. This information helps them give people more personalized experiences that make them want to stay loyal.
Average Value of a Deal
Businesses can see how much a single customer spends over time by looking at the average transaction value, also called the average deal size.
Companies can use this metric to determine which goods or services bring in the most money and which ones they should market more aggressively. It also helps them change how they sell and set prices to make the most money.
Using technology to figure out what brings in money
Without technology, businesses can’t make correct financial models or gather and organize data. Regarding revenue drivers, technology includes tools that help companies run more efficiently, learn more about their customers, keep track of their marketing efforts, and increase sales.
Planning for business resources (ERP)
ERP systems are made to help companies keep track of and handle their money. They can monitor customer information, make invoices, look at financial records, and improve pricing models.
It also helps with manufacturing and the supply chain by predicting demand, keeping track of goods, and allocating resources. Businesses need to know what products are available, what customers want, and how to set prices.
CRM stands for customer relationship management.
CRM software is the most essential part of any business because it stores information about customers and organizes it all in one place. People use it to keep track of sales opportunities, handle customer relationships, and improve marketing strategies.
They make the pipeline more efficient by keeping track of deals and conversation notes, helping customer success teams do a better job of keeping customers and showing marketing who to target with campaigns to get new leads.
Set up, price, and quote (CPQ)
Just having CPQ software is a way to make money. It makes the quote process automatic and ensures that prices are correct across all channels, like the website, shops, and backend sales.
Partner sites in CPQ software can help businesses increase sales from partners, suppliers, resellers, and other groups. It also lets users change how a product or service works for them before paying for it.
Automation in Marketing
Marketing automation software tells businesses who is buying what, when, and why, and it does all the work for them. It also lets marketers know which drivers work best and which ones they should eliminate.
There is no such thing as “marketing automation” software. What it means is a broad term that includes:
- Using email to market
- Take care of social media
- Marketing with content
- Lead scoring and caring for
It also helps businesses build accurate buyer personas, improve the customer experience, and keep track of their campaigns, all of which help them create demand.
Management of Revenue
All the parts of a good sales plan are in revenue management software. Businesses can set and change prices, monitor KPIs, predict demand, and measure different markets to make necessary changes.
It helps businesses set goals and aims, keep their books up to date, and make the best use of their pricing models. It also has forecasting and intelligence features.
