Companies are inherently expected to increase revenue growth year over year. So when there’s a slowdown in growth or, worse, negative growth, shareholders invariably pressure the CEO to demonstrate a thorough understanding of the problem and a comprehensive plan to fix it.
To jump on the problem before Wall Street starts probing, top business leaders can leverage these three steps to diagnose the root problem behind a lagging organic Compound Annual Growth Rate (CAGR) and begin to immediately reverse the trend:
1) Perform descriptive analysis: Companies can learn a lot about their revenue streams by mining line item level historical invoice and contract data. Identifying and quantifying which products and customer segments contribute to positive or negative growth can be uncovered during this process. However, taking quick action to identify uncompetitive pricing, ineffective promotions or sub-optimal inventory allocation decisions can provide a quick course correction and get companies on the right track. Additionally, immediately addressing the “low hanging fruit” will generate an instant payoff to drive the next level of sophistication.
2) Use predictive analytics to evaluate alternative scenarios: Companies face significant pressure to create immediate and actionable solutions when facing organic revenue growth decline. They can best combat this by using scenario based planning techniques to predict the impact of changes in product pricing, availability or promotions. For example, Revenue Analytics recently worked with a client, and leveraged a Classification and Regression Tree Analysis (CART) to understand the correlation between customer attributes and the net price they paid for the identified services. The result enabled a customer segmentation strategy that informed a discrete choice model. The team was able to then evaluate the impact of alternative pricing strategy changes on the discrete choice probabilities. Turning the pricing decision into a holistic scenario planning solution identified over $150 million in re-pricing opportunities over five years of customer contracts.
3) Outline a Revenue Roadmap: Although creating immediate, actionable items will put investors at ease in the short term, companies must also ensure those immediate actions are in line with a long-term strategy to sustain organic revenue increases. Developing a Revenue Roadmap with a perspective on the organizational & governance, advanced analytics, systems & technology, and enhanced pricing strategy & process needs is critical to ensure that long-term success.
Following the above steps will allow companies to not only diagnose exactly where they are facing a decline in organic revenue growth, but also show an immediate uptick in revenue with a long-term plan to ensure the same problems will not happen again.