There are essentially three different ways to generate revenue for your business: acquisition, retention and expansion.
Acquisition is bringing in new customers, retention is keeping/renewing existing customers and expansion is upselling or cross-selling to current customers.
Too often companies put the majority of their effort into bringing in new customers and end up missing major opportunities within the other two strategies.
But, if all three of those strategies are aligned and prioritized at your company, you can optimize your revenue, and revenue optimization is the key to growth and long-term scalability for your business.
What is Revenue Optimization?
Revenue optimization is about taking your business strategy wider and deeper than just acquisition and tapping into your most valuable opportunity for — your existing customers. It’s about building a plan to generate revenue from every corner of your business that at its heart is focused on bringing in truly good-fit customers, growing with them in the long-term and building a healthy customer base optimized for revenue growth.
Why Does Revenue Optimization Matter?
Revenue optimization is the key to long-term growth that you can count on for your business.
“By optimizing your revenue, you will be aligning your acquisition, retention and expansion strategies, improving the lifetime value of your customers, reducing your cost of acquisition and ultimately creating healthier and happier customers,” says Head of Demand Generation for New Breed, Guido Bartolacci.
By building out a full revenue generation strategy, you are making sure your growth isn’t reliant on one avenue and that you have a durable, optimized and adaptable plan for growth.
“When a lot of people think about revenue, they tend to only focus on one avenue like acquisition or solely retention or expansion, but the truth is all of those avenues need to be working together in order to see scalable growth for your business,” says Guido.
Focusing solely on your acquisition strategy of bringing in new customers isn’t a sustainable or reliable business model. But, understanding your current customers, retaining and expanding into them in addition to acquiring new customers is, and that’s what revenue optimization is all about.
We tend to think that generating revenue is a great thing, period. While we can all agree money for your business is a positive thing, if you are thinking past the point of acquisition some of that revenue is greater, or healthier, than others because it has different potential in the long-run.
Some customers are going to be more likely to stay with your company, and some will be more likely to churn. Some of your segments of customers will have more issues and friction with your product or service, which may make them less likely to upgrade or expand over time.
“If you are bringing in or focusing on the customers who result in unhealthy revenue, i.e. revenue with lower margins than others, then you should consider focusing your acquisition strategy around the data and insights you gain from evaluating your current customer base,” says Guido.
It is more expensive to bring in new customers than it is to expand into the customers you already have in your database. That means that you should be focused on truly understanding who your customers are, which ones are likely to upgrade or expand with your product or service, which ones stick around and which ones don’t.
Understanding those factors and segments will allow you to decide where to focus your time in terms of acquisition, expansion and retention.
How to Get Started with Revenue Optimization
In order to begin to optimize your revenue, you first need to be measuring and tracking your customer data so that you can identify where your healthiest revenue is coming from.
If you aren’t already, you should be tracking your customer acquisition cost and customer lifetime value. Those numbers are sometimes complex to find and track, but are extremely important indicators for many areas of your business.
You then need to understand where your healthiest revenue, or your healthiest customers, comes from, which requires a lot of data collection and segmentation.
You want to look at information deeper than just how much revenue is generated from certain types of customers, because the healthiest revenue doesn’t necessarily come from the segment that is bringing in the most revenue.
“A healthy customer in general is one that you can acquire at the lowest cost, retain for the longest period of time and have the lowest cost of service too,” says Guido.
You will also want to break up your customers into different segments based on firmographic information like industry, company size and annual revenue. This will allow you to look for patterns among customers who have certain rates and habits like churn or product adoption.
Once you are able to track these metrics, you will be able to analyze the information and start to get a real understanding of what's happening with your customers and where the best opportunity for healthy revenue lies.
This will allow you to optimize and align your acquisition strategy with your expansion and retention strategy. Doing this will foster a happier and healthy customer base and put you on the path to optimizing your revenue for long-term business growth.
Looking for help optimizing your revenue? A revenue performance management firm is the solution! Learn all about them in this post: