A revenue stream model that will help you boost sales and profits

It is very important that you take a very close look at the graphic below, which visually represents what I call the Basic Continuity Revenue Stream model.

Why is this graphic so important?  It highlights several key principles relating to strategic business growth.

The Basic Continuity is the most fundamental revenue stream model a business can operate.  But before getting into the principles this model highlights, let's review the concept of the revenue stream model.

So what is a revenue stream model?  In essence it is a framework that outlines how you intend to generate and grow revenue – especially revenue of the high value-back end variety. (Re-read my post on the four types of revenue for a refresher on this important topic)

In my experience many business owners and CEOs focus too much on the next sale or product launch without taking into consideration how that sale or launch fits into the wider strategic plan. 

The revenue stream model focuses your thinking on revenue and profitability on a strategic level – unless of course if you're operating the black hole revenue stream model which was the topic of my last post.  As I stated in that post, the black hole model is the stupidest way to grow a business.

Anyway, let's take a quick look at the key principles highlighted by the Basic Continuity model.

1. Principle #1.  Everything starts with brand awareness.  Without brand awareness you can't get a customer.

2. Principle #2.  Before you get a customer, you must have a prospect

3. Principle #3.  You need to focus on the back end.  Getting a one-time customer is the start of revenue and profitability.  Real business growth occurs when you generate multiple sales/sales transactions to multiple customers.

4.  Principle #4. Having a back end requires you to offer multiple products or products that can be sold to the same customer multiple times.

5.  Having a back end requires you to have some way of locking in customers.

Let me briefly touch on the concept of continuity, which is a fancy way of saying "back end".

In a business there are two types of continuity – contractual-focused and service-focused.

Contractual continuity.  Sometimes referred to as forced continuity.  This is where a business provides x product/service for x period of time to a customer over a contractually agreed-upon period.  The simplest examples of this are the  telephone or electricity services you receive.

Some businesses add fish-hooks to their contractual relationships with customers in order to tighten the relationship in favor of the business – and often penalizing customers in the process.  For example, some gyms/fitness centre are notorious for locking customers into forced continuity membership contracts that financially penalize customers who want to end memberships early.

One of the biggest disadvantages of contractual continuity relationships – especially those with fish hooks and high switching costs – is that it can make the business lazy.  Sometimes a business just focuses on clicking the ticket without too much thought to building a relationship.

Service continuity.  Service continuity is a relationship based on a high level of trust and loyalty between a business and its customers.

A service continuity relationship may have a contractual element to it – however there are no fish hooks that obligate the customer to the business.  So if the customer chooses to go elsewhere its relatively easy for them to do so.

A service continuity relationship puts the onus on the business to consistently provide good products and services to its customers…knowing full well that customers may run to a competitor if they become unhappy.

Whether it be service continuity of contractual continuity or both – the idea of getting back end revenue in your business is one that should be top of mind for you.

In summary, one of the key components in your strategic plan is your revenue stream model, and the selection and development of the right model for your business is critical.

Next post I'll share with you some variations of the continuity model.

By Ben Bartlett on Friday, May 27th, 2011
Categories: Revenue Stream Model, Sales Process

The stupidest way to grow sales revenue

Following on from my introduction to the four types of sales revenue, I want to share with you one of the stupidest revenue stream models you'll ever come across.  It represents an extremely short-sighted approach to business development and fails to take into account that the big money in business is on the back end.

Funny thing is, so many businesses use this model in their business-building efforts.  What about you?  Here is the model:


I think the visual explains it quite well:

1.  A business creates brand awareness for itself and its products

2.  From that brand awareness, the business generates sales prospects/opt-ins which – if the business owners has half a brain – go into the business's database.

3.  The prospect is then converted into a customer.  KA-CHING, a sale is made!

4.  That new customer then falls into a black hole, never to be heard from the business ever again. 

5.  The business misses out on additional revenue from that customer. Instead it focuses on getting more new prospects and customers.  In essence, the black hole represents a wasted opportunity.

Why do some business owners operate such a dumb model?  Two reasons:

1. Mental and behavioral.  Some business owners just couldn't give a stuff about the back end and so their whole mentality is about getting new business.  They operate a dumb model because they themselves are dumb.

2. Strategic.  Many business owners understand the concept of the back end, but don't really know how to put it in practice in their business.  So, in this respect they need to know how to strategically develop and implement a sound revenue stream model. In particular they need to know how to create a focused product portfolio, develop the right price points, position their products to the right target markets and develop a proper sales process.

If you have a mental and behavioral block towards developing a back end in your business, it's unlikely that I can help you.

However, if you want to develop a back end, then continue to read the next few posts as I go through some other, more effective revenue stream models you can create and implement in your business.

Remember these key points.

1. The black hole revenue stream model is for dummies. 

2. The big money is on the back end.

In the next post we'll look at a basic back end revenue stream model and I'll also introduce some model variations for you to consider.

By Ben Bartlett on Thursday, April 7th, 2011
Categories: Revenue Stream Model, strategic planning

The four types of sales revenue – and which is best for your business

I want to share with you some important revenue generation concepts that will help you in your strategic analysis and planning efforts.

You're unlikely to read about these concepts in a traditional business planning textbook, and very few accountants even know about them. Yet they are crucial to the development of your business.  What's more, come to grips with these concepts and you will see business growth and development in an exciting, new light.

To illustrate these concepts further take a look at the following matrix I've developed:

As shown in the visual, revenue in your business can be classified into four categories – of which one category offers you the greatest potential for long term success. Let's take a closer look at them.

First of all, a business can generate front end revenue and back end revenue.  Front end revenue is that which you receive from first-time customers, while back end revenue is what you get from existing customers.

Next is low value revenue vs high value revenue. Low value revenue is that which is generated from products and services where the unit sales transaction value is low, as is the gross margin. And high value revenue is that which comes from products and services where the sales transaction value and gross margins are high.

With these definitions in place we can classify the sales revenue in these broad terms:

Front end/low value revenue:  Low margin/transaction revenue to first-time customers.

Front end/high value revenue: High margin/transaction revenue to first time-customers.

Back end/low value revenue: Low margin/transaction revenue to existing customers

Back end/high value revenue: High/margin transaction revenue to existing customers.  These are your high value customers.

In the visual I've given each type of revenue a color, which is a rating of that type of rating.  Red = bad, orange = ok, Green = great.

Now, here's what I'd like you to do.  Take a look at your revenue for say the past 6 months and segment it according to the definitions I've given you.  Put simply, work to identify what proportion of your revenue is green, red, or orange.

When you've done that, answer this question:

 

It's true, in business the bigger the back end the better.  And all highly successful businesses have big back ends.

The cold hard reality is this.  If you generate mostly red revenue, it means your revenue stream model is severely flawed.  Businesses with mostly red revenue operate what I call the churn and burn model because it requires them to churn through customer after customer just to stay afloat.  The model is very short-sighted.

On the other hand, if a significant portion (over 60%) of your revenue is of the back end variety then it means you have a well structured revenue stream model and that it is operating effectively.  Naturally, the ideal situation to be in is when most of your back end revenue is green revenue.

And one other point. If you have a lot of green revenue you will likely find that it is being generated by a small proportion of your customer base (anywhere from 5-20% of your customers). 

Take another look at the matrix at the two blue arrows.  They are there to remind you of the direction you need to head in your revenue generation efforts.  You start out in the left hand side by generating front end revenue.

But, to develop your business you need to need to move diagonally to the right and vertically. That is you need to generate back end revenue/high value revenue.

Some keys to developing back end high value revenue?

  • Develop a strong strategic position and strategy
  • Develop a back-end focused revenue stream model
  • Create and develop a powerful sales process

In a few days time and I'll post an article with some specific tips on developing a back-end focused revenue stream model.  So make sure to check back then.

By Ben Bartlett on Friday, March 25th, 2011
Categories: Uncategorized

The single biggest cause of business failure

No doubt by now you've set your plans in place for this year and are now working towards achieving your targets.

Now, to ensure you hit your targets you're going to have to overcome the single, biggest cause of business failure and under-performance.  What is it? Let me explain.

Over the years I’ve read countless articles and studies on the subject of business failure and/or poor performance.  The various authors and researchers identified a number of reasons for these problems, with the following being the most popular:

  • Bad management
  • Under-capitalization
  • Poor resource utilization
  • Ineffective marketing
  • Bad luck
  • Poor processes

As you can see, the list is quite broad and covers a wide variety of business issues and problems.  However, none of the reasons outlined is the root cause of business failure, of which there is only one.  More importantly, if you can effectively address the cause of failure, then the problems such as those outlined above are less likely to occur.

The single biggest cause of business failure.

Business failure is caused by one thing and one thing only.  And it is this one thing that leads to bad management, bad marketing and so on. So what causes business failure?  It is simply this: poor thinking and decision making. Let me elaborate

All activities you engage in as a business owner – be they strategic or operational – are firstly derived from a thought, and then a decision. This decision is then translated into action, which then produces an outcome or result.  The diagram below illustrates my concept of the thought "causal chain" and what it does is highlight the role of thoughts and decision-making in producing results:

 

 

As the diagram illustrates, every result you achieve – be it in business or personal life – is firstly derived from your thoughts, ideas and decisions.  For instance, in business there are lots of things you need to think and make decisions about, such as:
 

  • Product and service mix.
  • Target market/s.
  • Suppliers.
  • Employees.
  • Business structure.
  • Processes and systems.
  • Geographical target.
  • Joint Venture partners.
  • Prices.
  • Marketing and advertising methods.

Once you make decisions relating to these areas you, your staff and external suppliers/partners, develop processes and then engage in activities that support the decision.  If it’s a bad decision, the activities and subsequent outcomes will most likely be failure or bad performance. In effect then, any failure/poor performance is the result of the poor decision and thought.

If you accept that premise, you will then understand that successful activities and outcomes are caused by good thinking and good decisions. So whereas poor decisions often lead to poor outcomes, good decisions often lead to good outcomes.

My work with companies, both large and small, has shown me that the owners and leaders of the best companies consistently make good decisions and effectively execute these decisions in the marketplace.  Also, when they do make bad decisions they are able to recover quickly.

In contrast, businesses that struggle constantly can attribute the struggle to poor decisions.

To summarize, poor thinking and decision-making is the single biggest cause of business failure and poor business performance.  And, good thinking and good decision-making is the single biggest cause of business success.

Therefore, to improve business performance you firstly need to improve your ability to think and to make good decisions.  In the next post we'll look at ways in which you can improve your thinking and decision-making abilities.

By Ben Bartlett on Thursday, February 10th, 2011
Categories: strategic planning
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