Four Drivers/Components of Revenue; Einstein’s Greatest Invention of All TimeSUNDAY, OCTOBER 18TH, 2009
Simple business 101 leads you to believe that most business owner would know what the four drivers or components of revenue are. Knowledge of these drivers provides the insight on what you need to produce revenue growth. Yet most business owners don’t know. When one of our coaches asked this question today and offered a $100 bill to whoever could answer I must confess I and everyone else in the room was stumped. Perhaps it’s because we seldom are asked this question, however it’s an answer we should all be aware of and remember! The formula is C x F x T x P = revenue. That’s revenue equals # of Customers, times Frequency of purchase, times Transaction size, times Price.
Learn more about the revenue riddle from Verne Harnish and one of our Gazelle coaches, Bill Howe in an article from Smart CEO on Growth Engine Group’s website.
You’ve heard the question which would you prefer a penny doubled every day for a month or $1 Million dollars? How about $5 Million? Depending on the length of your month you’d have to go to $10 Million dollars to beat the money you’d earn by compounding a penny every day for 30 days. The rule of 72 explains the value of compounding.
The results you can gain working on just one of the four components of revenue is impressive. As an example, increase the frequency of your customers’ purchases from 2 to 3 times a year, and the result is a 50% increase in sales. Imagine you can make even a small improvement working on all four. Any wonder why when Albert Einstein was asked what the greatest invention of the 20th Century was he responded, “Compound Interest!”
Look for an upcoming newsletter to provide an Excel spreadsheet to provide you with the formula for the four drivers of revenue. I’ll have more from our Gazelles meetings and the Growth Summit this week.
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