Different Top Line Goals

Quick Summary: Meeting top line revenue goals requires a company-wide strategy led by the CEO.

Abstract:

It is easy to establish a goal of increasing top line revenue for a company.  However, exactly what that means may result in groups within the organization developing their own strategy and tactics.  For example, should gross sales or profits be the focus, should expansion into new markets or solidifying current customers be the focus, or should increased market share be the dominant driver?  All of these goals are valid, but which should be emphasized across the organization?

It is highly doubtful that a senior field military commander would be successful if they issued an order: “Take the hill!”  Hopefully, his subordinates would respectfully say: “Which hill, sir?”  Sounds silly, but how many companies give orders to their sales teams of “increase revenue?”  This statement is equally silly.  In a military engagement, the logistical support units must be involved and know precisely what the mission is – often before the frontline troops are informed and certainly before they engage the enemy.  Just like an army, a sales team and everyone else in the organization needs to know the rules of engagement and understand the objective to allow them to adequately plan their activities.  As nebules as the mandate of “increase sales” is, an equally ineffective mandate would be “increase revenue, while increasing profit margins and market share in existing markets, and expand to new markets, while never losing an order, and satisfy every customer no matter what!”

Obviously, no sane CEO would make a mandate as previously described – consciously.  However, by not being very specific about the revenue goal, sales management or individual sales reps may decide which of the elements in the mandate should be emphasized over others.  Similarly, others in the organization focused on their individual roles and responsibilities will do what they think is the right approach and answer.  Marketing, Business Development, Finance, Manufacturing, and business partners may need to adapt their strategy and tactics based upon the carefully articulated goal.  If not, each of these groups is likely to select their own goals and pursue them accordingly.

There is no universal right answer in terms of which of the factors should be pursued (at the expense of others).  Clearly, some of the factors will be at odds with others.  For example:

Goal

Possible Impact

Increased Market Share

Higher Discounts àLower Margins

New Market Penetration

Higher Sales Costs àLower Profitability

Higher Margins

Fewer Sales à Lower Market Share

Increased Customer Satisfaction (no matter what)

Higher Costs à Lower Profitability

 

Two highly successful companies, as measured by their market capitalization, are Amazon and Apple.  Amazon’s retail business dominates Internet sales but operates with exceedingly low margins.  Apple’s iPhone and overall business is highly profitable but has a much smaller market share than its primary rivals.  Which model is “right” – you decide.  The market has embraced both strategies.

Based on the company’s stage, the Top Line revenue goal is likely to change.  Other articles in this collection discuss the three types of revenue that a new company needs to sequentially move through.  The phases also apply to an existing, mature company that is introducing a new product line or moving to a new market or market segment.

Referenceable Revenue is the first phase.  During this phase, the company is probably very small and not experiencing any economies of scale while simultaneously not burden with high overhead (people and high-volume capabilities). During this phase, the goal should be to attract prospects who, through their purchases, validate the company’s business idea.  Sales should be made at virtually any cost.  With the initial low sales dollar volume, product costs may result in negative gross margins and “below the line” operational costs will most probably exceed any generated revenue.  Clearly, staying in this phase will not result in a sustainable business.  However, this phase is critically important to validate the business premise based on the simple premise that “It is not what you say that counts; it is what prospects do.”

Scalable Revenue is the second phase.  During this phase, the company will be adding resources in most areas to satisfy the forecasted increase in demand.  Quite often, people, equipment, and inventory will have to be added well in advance of sales (and collections).  The goal of this phase is increased revenue (not profits) in preparation for the third phase.  During this phase, cash reserves will quickly diminish.  Every group within the organization will probably find that their resources are spread too thin.  Careful allocation of cash must be made until revenue “catches up” with the increased costs associated with the scaling activities.

Profitable Revenue is the third and final phase.  During this phase, the emphasis should be on increased revenue and increasing capacity (people, equipment, and inventor) consistent with the revenue forecast and profitability targets.  During this phase, the company needs to reevaluate its goals: Increase Revenue, Market Share, Market Expansion, Competitive+ Positioning, New Product Investment, or Profitability.

During each of these phases, all internal “silos” or individuals with specific responsibilities will probably feel that they need more resources to accomplish “their” goals.  Most will be right.  However, with very few exceptions will a company be able to meet all projected needs.  It is, therefore, important for each element in the company to clearly understand the company’s revenue goal during each phase and optimize their activities accordingly.

Think of each function in the company such as sales, marketing, development, manufacturing, customer service, finance, etc., as variables in the success equation.  During each revenue phase and with each specific overall revenue goal, different emphasis will need to be placed on each activity.  Just as the field commander must specify the specific goal and then leave it up to their unit officers, a CEO must set the goal clearly and allow each group to optimize their resources accordingly to meet the company’s overall top line goal.

 

Article Number : 5.010002   

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