What is predictable revenue? Everything you need to know
Ensuring your business has consistent and regular revenue can take a lot of work. With the help of revenue analysis, it can also become possible to project future growth or stretch goals for your company. That’s why professionals are turning to the model of predictable revenue.
A predictable revenue model is a framework that estimates how much revenue your business is constantly generating, showing how the business will grow based on a formulaic process. This means understanding how much average revenue the company makes over time to see how you might improve these areas in the future. There is no room for last-minute guessing.
How Predictable Revenue Can Help You
By implementing this framework and removing the guesswork related to growth, your business can see a variety of positive impacts that reach beyond your revenue and provide peace of mind.
These are not limited to:
- Annual goal setting: Set revenue targets each year and achieve them within a narrow margin of error.
- Predict and prepare for the future: Determine that each year’s growth rate will increase by a specific percentage, continually stretching our capabilities toward a high-performance company.
- Ability to invest in your organization: When you understand your growth trajectory, you can comfortably take on investments (additional employees, systems and tools, investment in product) Need to know what margin you’re working with.
- Ensures consistency: If you have predictable revenue, you have the stability that eliminates the emotion of pricing the deal.
- Make business decisions: if you know your revenue stream, you can make decisions like hiring or technology investments.
Why is Predictable Revenue Important?
Without predictable revenue, a company’s future is always uncertain. One-time revenue spikes that aren’t repeatable won’t help you achieve consistent year-after-year growth. This leaves your destiny to outside powers: hiccups in the economy, regulation changes, new competition, loss of a major customer, etc.
How to Achieve Predictable Revenue
So, you’re ready to trudge down the path to predictable revenue, but where do you begin? Our six steps can ensure your business runs smoothly and is prosperous for years to come.
1. Understanding your existing landscape
To ensure you move forward without pulling along the challenges of your past, it’s important to take the time to evaluate where your organization currently resides. We’d recommend starting with a hard look into your sales function and how things operate.
Beginning with an analysis of your sales funnel can provide a high-level overview of your organization’s successes. Some key areas to examine closely include the time to convert from prospect to customer, average actions taken before converting, and the total number of prospects converted over a certain length of time. The data taken from your findings can paint a clear picture of where your business is currently exceeding and potential areas for growth.
Another helpful metric to determine is deal size. While it may seem simpler to ask the team to shoot for the stars and seek out opportunities associated with large dollars, there is a give and take to be considered. With only large deals being considered, your potential to lose out on regular smaller business is extremely high. Small orders or accounts can also be easier to acquire. With less at stake for your potential customers, it is more likely they’ll be willing to work with you initially. If you continue to provide excellence and a high level of customer service, it’s possible a smaller account would consider you for a larger opportunity after building this relationship. Whatever your ideal deal size is, it’s imperative this is shared with any individuals who touch sales efforts. This information can provide them with a daily goal to meet.
2. Assess your team
An experienced team can work through issues without bringing them to the attention of their managers. If a similar issue arises several times, the individuals may be so used to their workaround that they continue utilizing it. It’s important to stay abreast of happenings so that leadership and managers can catch these reoccurring challenges and provide long-term solutions for them. In many cases, these challenges are buried in everyday processes. Consider holding regular check-ins with the team or asking them to walk you through certain procedures. This may help illustrate where improvement can take place.
While providing a solution can feel like the task is complete and all innovation has been implemented, growth tends to exacerbate issues. It’s important to revisit innovations to determine if they are still functioning as best as possible.
3. Establish goals
With the end goal of predictable revenue, it may seem daunting to determine all the smaller tasks that go into it. Consider hosting a group workshop to determine each department's role in making this dream a reality. Be sure teams like sales, marketing, and customer service are included. IT can be helpful to map out your customer lifecycle to see all the touchpoints an individual or organization has with your business.
4. Optimize operations
During your workshop, team members may be willing to share things that are not currently working. You’ll also identify challenges when assessing your team. While the list of tasks needing optimization gets longer, it’s important to take a methodical approach to concur them.
Tackling low-hanging fruit is a great place to start. These types of optimizations can provide quick relief for challenges and install confidence in team members. This allows you to get buy-in to move forward with optimization as they become more challenging.
For larger issues, systemically breaking them into smaller tasks can help you reach project milestones. To further get team buy-in, consider how you can appoint certain stakeholders to complete the smaller tasks. If they directly impact their daily work, their passion will help speed things along.
5. Monitor progress
Innovating doesn’t end once the initial optimization is over. Revisiting your new processes regularly can help you see issues or challenges on the horizon. Appointing your innovation stakeholders to share updates quarterly can provide you with a high-level view of things that are working and not.
After your initial round of process optimization, your work is not quite done. As your business continues to grow, new challenges will arise, so it’s important to revisit things to ensure they still work for your current state. To help guide this journey, you can always revisit the above steps on where to begin.
All these benefits provided by a CPQ solution can set an organization up with one of the most sought-after superpowers in business-to-business (B2B) sales—predictable revenue.
CPQ solution suites are among the fastest-growing B2B sales applications on the market for businesses looking to align their operations with their revenue growth goals.
When you understand the growth trajectory of your business, you can comfortably take on investments like additional employees, systems, tools, and investments in products. But you need to know what margins you’re working with. That’s what CPQ is for.