What Is Revenue Growth Management? (Definition + Strategies)

It’s hard to imagine a company uninterested in expanding its annual revenue. After all, increased sales can enhance profits and lead to a larger footprint in your market sector. As the organization continues to flourish, it will strengthen its position in the market, making it more resilient against external forces.

Through a disciplined approach to sales growth, it’s possible to achieve organic growth and incremental revenue increases continuously. A strategy companies rely on is revenue growth management.

Many organizations seek to apply a revenue growth management (RGM) strategy to attain increased sales. RGM uses a mix of factors, including pricing optimization, customer understanding, and data-driven decision-making, to strategically increase revenues year over year.

What is Revenue Growth Management (RGM)?

Essentially, RGM refers to the method of analyzing customers’ buying patterns to determine what products, services, pricing, and promotions to offer customers to increase revenue. Today, companies in all business sectors, including SaaS, apply revenue growth management software and principles to increase sales and reach new customers.

What are the 5 Pillars of RGM?

Several vital principles interact with one another in revenue management. Use all five to optimize your strategies and increase sales.

1. Customer-Centric Approach

A customer-centric approach to revenue growth involves strengthening relationships between clients and businesses. Rather than simply seeing the customer as a sales prospect, companies adopting a customer-centric approach put the customer at the core of the business. They focus on the client’s needs and preferences to create meaningful experiences.

Companies that can attain a mature level of client-centricity can increase revenue growth by an average of 2.5x compared to their peers. However, properly integrating customer-centricity isn’t easy and requires an honest assessment of existing functions and commitment to transformation among all stakeholders.

Break Down Organizational Silos

The first step of the customer-centricity principle requires all departments, even those that aren’t customer-facing, to understand their business impact on the final delivery of a product or service. Instead of operating in silos, teams should work together to impact the client experience positively.

For instance, departments that don’t traditionally work together, like research and development (R&D) and sales departments, should regularly meet with one another and discuss business strategies. The sales team could be a part of the early R&D process when engineers and product developers brainstorm a new item or service. Since sales professionals speak directly with customers, they have comprehensive knowledge of client needs that R&D teams lack. And their input could help the R&D team understand what customers want, helping to guide them in the development process.

Map Client Journeys

Another aspect of the customer-centric approach is the mapping of client journeys. A client journey illustrates the typical steps clients take as they first learn about a company and want to make purchasing decisions.

Organizations that thoroughly understand the customer journey process can apply the knowledge to factors that impact revenues, like marketing strategies. A willingness to invest more in the customer’s positive experience can lead to further revenue growth, even if that means hiring more customer service representatives, sales managers, and business leaders.

2. Data-Driven Decision-Making

You’ve likely made more than a fair share of decisions based on intuition. But while there’s nothing wrong with following your heart, it may not lead to the outcome you’re hoping for, at least when it comes to RGM. Instead, companies that follow RGM principles rely heavily on data to get actionable insights and make strategic decisions about pricing and customer needs.

You can collect real-time data and incorporate advanced analytics to drive revenue growth in various ways. For example, you can:

• Conduct a survey to learn what products or services (or even features) your customers want.
• Use demographic analysis as a source of truth for potential business opportunities or threats to your operating model.
• Perform user testing to unveil and resolve potential problems with your newest product line before releasing it to a broader market.

One company that uses data in its revenue generation strategies is Amazon. The recommendation engine of Amazon tracks consumer browsing and purchasing history to suggest products the client might want. It focuses on increasing sales and prevents Amazon from losing valuable revenues from clients who aren’t sure what they’re looking for or need guidance for a future purchase.

3. Optimized Pricing Strategy

Companies use different pricing strategies to maximize their revenues and attract clients. Often, the pricing strategy varies depending on the product’s stage in the life cycle, whether there are competitors, and what customers are willing to pay. But as a general rule, if product or service costs are too high, you’ll have trouble attracting steady revenues. Conversely, if they’re too low, you may find it hard to cover your expenses, and profits will fall.

An optimal pricing strategy is somewhere in the middle. It attracts the maximum number of customers while still reaching company profit goals. Companies rely on internal and external data and forecasting to optimize pricing to set prices that align with customer expectations while achieving revenue growth.

4. Profitable Growth Over Revenue

Consistently achieving revenue growth is only meaningful if you can increase profits, too. For example, your efforts haven't translated into scalable growth if you grow your business revenues from $1M to $10M but still have the same $150,000 in annual net income. Something is wrong with either your pricing or cost containment strategies.

If you think expenses are to blame for your inability to scale profits, look closely at your costs. Are you spending too much on overhead or product development? Could you reduce those costs to improve profits?

The alternative is increasing prices. While raising prices might result in losing some customers, it can enhance overall profitability and lead to sustainable, scalable growth. The trick is to balance potential customer loss while still achieving profit objectives.

5. Consistent Improvement of RGM Strategies

External factors, such as price elasticity, competitor offerings, market conditions, product costs, and the regulatory environment, can all impact your revenue growth management efforts. For instance, if new competitors begin to offer similar consumer goods as yours, and they can offer lower prices or better quality, it will impact your revenue growth efforts. Similarly, if inflation rises and your customers have less money to spend on your services, you may see revenues slide.

Properly implementing an RGM strategy requires continuous assessment of external factors. If changes arise, you must refine your RGM techniques for driving revenue.

Four Strategies for Implementing RGM

To make the most of your RGM efforts, consider these strategies.

1. Segment Customers

How well do you know your customers? Companies genuinely in touch with their client base use various customer segmentation techniques to understand consumer behavior and the factors that drive them to purchase. Often, it’s not a single factor, such as the product’s price, that results in a sale. Instead, many elements are at play. Knowing how those factors interlace can help companies predict consumer behavior and use that information to encourage further sales.

The main four consumer segments you can use to classify your customers are as follows:

1. Behavioral segmentation seeks understanding what customers want and why they choose the organization’s products or services. It considers the product’s benefits, how the consumer uses it, and whether the buyer is specifically loyal to the brand or is a first-time buyer.
2. Demographic segmentation considers the buyer’s characteristics, like age, gender, ethnicity, family size, education, income, and social class. Those factors can impact a person’s interest (or lack thereof) in a product. For instance, someone with a high disposable income might shop for luxury cars, while someone on a strict budget might look at less expensive alternatives.
3. Geographical segmentation considers the client’s location, including their city, state, and country. Other factors, like the location's climate or population density, can also impact the purchasing decision. For example, someone in Canada might be more predisposed to buy a heavy winter coat than someone in Miami.
4. Psychographic segmentation seeks to comprehend consumer preferences, opinions, interests, lifestyles, and attitudes to better cater to the needs of a target base. For instance, restaurants serving mostly vegans and vegetarians might find they would benefit from introducing a vegan-based menu.

2. Start Small and Scale Up

In the early startup stages of a business, it’s common for companies to want to grow as quickly as possible. After all, no company can survive on limited revenues forever; the faster it grows, the quicker it will reach profitability. However, it’s essential not to overlook the foundational underpinnings of the business before scaling. A well-organized business model is much easier to grow than one with few kinks to work out.

One significant factor that may impact your ambitions for your company is access to capital. Without capital, you may find it challenging to pay for expensive advertising campaigns or serve your customers how you’d like. Determine how to find resources to fund the next business stage, whether through a bank loan or an interested investor.

Consider your company’s organizational structure, too. In the beginning, many businesses follow an informal flat management structure that allows everyone to pitch in where their help is needed. However, preparing for future revenue growth may require a more formal and authoritative management structure. That way, you put certain business decisions in the hands of people most competent to make them.

3. Get Buy-in From Stakeholders

As you focus your efforts on revenue growth, you’ll want to ensure all stakeholders understand what you’re trying to accomplish. Explain your objectives for increasing revenues and what it will mean for the company and its customers. Don’t simply focus on profits and increased market share; discuss what it means for the organization’s industry status, ability to attract future investors, and how the company’s products or services will benefit your consumer base.

When you have buy-in from your stakeholders, you’ll encounter fewer hiccups that hinder your goals. You won’t see as much pushback. Instead, stakeholders will do what they can to support you and make meaningful suggestions.

4. Optimize Promotions

If few people know what you’re selling, you’re unlikely to attract the sales you need to achieve revenue growth. Use promotions and advertising to your benefit, especially if you’re a new company without a solid customer base. Even established companies can increase their sales with a well-developed promotions strategy.

You want to be where your customers are, offering your products or services at a price they want to pay. Thus, you want to select a marketing strategy that connects you with your target audience while remaining aligned with your company’s financial budget and objectives.

For example, consider a SaaS company selling a monthly subscription to a database of online textbooks. College students will most likely benefit since they can access the texts they need without paying for each one outright. The SaaS company would want to optimize its marketing strategy to reach students where they frequent, like their schools and through social media.

Experience Greater Revenue Growth With Revolv3

As a founder or manager of a growing SaaS company, you may find it hard to sustain revenue growth if you constantly deal with customer churn and payment declines. Revolv3 aims to change the game by eliminating fees for declined transactions and increasing approvals. We offer a robust subscription billing management platform with several alternatives, including flexible recurrence periods and sequence and stack billing options.

Contact Revolv3 today to learn how we can help your organization increase recurring revenues.

Sources:

• What is Customer-Centricity, and Why Does It Matter? | California Management Review (berkeley.edu)
• Customer-centricity: Is your company keeping pace? - Strategic Account Management Association (strategicaccounts.org)
• The Advantages of Data-Driven Decision-Making | HBS Online
• 15.3 Pricing Strategies – Principles of Marketing (umn.edu)
• The New Frontier of Price Optimization (mit.edu)
• 8 Steps Managers Can Take to Improve Profitability | HBS Online
• 15.2 Factors That Affect Pricing Decisions – Principles of Marketing (umn.edu)
• 5.2 How Markets Are Segmented – Principles of Marketing (umn.edu)
• Chapter 7. Encouraging Involvement in Community Work | Section 8. Identifying and Analyzing Stakeholders and Their Interests | Main Section | Community Tool Box (ku.edu)
• 6 P’s of Marketing to Grow Your Business | Maryville Online

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