What is revenue performance?
Revenue performance is a key performance indicator (KPI). It describes how an organization’s sales and marketing efforts are performing. It can also describe the revenue products or services make versus their costs. Revenue performance is derived from other revenue-related metrics. These include customer lifetime value, customer acquisition cost, retention, and churn rates.
What is revenue performance management?
Revenue performance management is the process of measuring, analyzing, and optimizing revenue performance. Businesses do this by tracking relevant revenue KPIs and the efforts that drive them. The two greatest drivers are the number of customers you can win and keep, and their lifetime value. Improving these two metrics is the ultimate focus of revenue performance management.
Why revenue performance management is important
Every business wants to be as profitable as possible. For you to get paid, you need to be able to increase that profitability. To increase profitability, you need to understand the factors that drive revenue. Revenue performance management is the process of optimizing those factors.
You make it your job to understand the processes and behaviors impacting them. With that understanding, you can effect revenue-boosting change. Without this understanding, it’s hard to optimize the processes that drive revenue. As a result, any efforts to increase revenue will be hit or miss.
Every arm of your business ties back to revenue in some way. So, revenue performance management (RPM) affects every corner of your org in some way. Sales teams convert leads. Customer success teams reduce churn and boost retention. Marketing teams shuttle more leads into the top of the funnel. Effective RPM takes all this into account. You'll work with leaders across teams to solidify strengths and stamp out weaknesses.
How to manage revenue performance
To manage revenue performance, you must understand the factors that contribute to revenue.
From there, you need to know:
- How to identify which areas need improvement.
- How to make those improvements by effecting the right types of change.
Of course, many factors contribute to a business’ revenue cycle. An excellent starting point is to:
- Understand the key metrics and KPIs that play into revenue.
- Set up tracking for them where it doesn’t yet exist.
- Understand the factors that drive those KPIs in your org.
- Pick a few KPIs to improve, and develop a strategy for changing behaviors in ways that will improve them.
First, let’s take a look at the KPIs that drive revenue:
13 KPIs for measuring revenue performance
Before you can manage your revenue performance, you need to know where you’re at.
KPIs that help you measure how well you’re acquiring (and keeping) customers, and increasing their lifetime value, will help you figure out how effective your processes are.
Here are 13 of the most important KPIs for measuring revenue performance:
- Total revenue
- Conversion rate
- Close rate
- Sales by region
- CAC
- LAC (lead acquisition cost)
- Retention
- Churn
- CLTV
- Average deal size
- Gross profit margin
- Market share
- Profitability
1) Total revenue
Total business revenue is an important top-line figure. We’re interested in trends over time, here – whether overall revenue is rising or falling.
2) Conversion rate
Getting more customers increases your revenue. Take an interest in sales performance and look for ways to improve it, but also look for ways to increase the number of leads you manage to get to the discovery call stage. Take interest in all stages of the sales pipeline when looking at conversion rates.
3) Close rate
Don’t just pay attention to the percentage of leads you’re managing to convert into paying customers.
Take an interest in the close rates of individual sales reps, or aggregate the value across teams if you have multiple sales teams in different states or regions.
These performance figures can reveal valuable information about both your reps’ performance, and about the demographics you’re targeting.
4) Sales by region
If yours is a large organization, sales in some regions might be markedly lower than in others. Marketing campaigns might not translate well across cultures, or your sales teams might be under-skilled in those regions.
Examining sales by region can highlight regions that need attention.
5) Customer acquisition cost (CAC)
There are costs involved with getting a customer onboard. Reducing these costs increases the amount of profit you’ll make per customer, and reduces the amount of time you need to have them on your books before they start turning a profit.
6) Lead acquisition cost
Just as there are costs associated with taking a customer through the entire sales cycle, there are always going to be customers you don’t close. There’s a lot you can learn from the leads you never manage to convert, so it’s wise to pay attention to them.
The cost of acquiring leads is the first obvious, associated metric. If you can acquire the same number of leads for less, you’ve got a more efficient sales funnel. These savings will trickle down into lower CACs, and increase revenue through greater efficiency.
7) Retention
Everyone knows it’s cheaper to keep a customer than to acquire one. So keeping around the accounts you’ve already won is crucial.
If retention is low, you’re losing hard-won customers. This, of course, negatively impacts revenue.
8) Churn
The other side of the retention coin is churn. Your churn figure shows the number of customers you’re losing for every new customer you gain.
High churn means low retention, which puts more pressure on your sales and marketing teams to generate new leads and convert them.
9) Customer lifetime value (CLTV)
Customer lifetime value is a powerful summary statistic. It describes how much your customers spend with you before they churn.
Increasing this number is a sensible goal for every business and, as we’ll discuss in the next section, there are many ways to get there.
10) Average deal size
This one’s a no-brainer. Increase your average deal size, and you increase your revenue. Tracking this number and rewarding your salespeople when they increase it incentivizes them to upsell and cross-sell effectively – two very effective ways of increasing average deal size.
11) Gross profit margin
Your gross profit margin is calculated as your revenue minus cost of goods sold (COGS). In other words, the amount of money you make from sales, minus the CAC and cost of fulfillment.
Gross profit margin is a great “final” metric by which to judge your revenue performance. More efficient RPM means more revenue at lower costs. In other words: higher gross profit margins.
If your other revenue performance metrics look good, but gross profit margin looks low, increase it by finding high-value ways of fulfilling your service with lower costs than your current methods.
12) Market share
Moving onto broader overview metrics, the larger your market share (and the faster its rate of growth over time), the better your revenue performance will be. Market share statistics also take into account how you’re performing relative to your competitors – crucial to be aware of if you’re to hold a sustained competitive advantage over time.
13) Profitability
Lastly, and to tie things back to the beginning, your profitability is perhaps the most important metric of all. Just as you want to boost your total revenue by looking for, and fixing, inefficiencies, increasing CLTV, and improving conversion rates and lead numbers, you also want your final profit to be as high as possible by keeping costs low.
Compare your profitability with your total revenue to identify places you might be able to cut costs.
Next steps
With a solid understanding of which factors in your business drive revenue, you’ll need to understand what behaviors and processes in your business play into those KPIs.
From there, pick which KPIs to improve, and start working with leaders in other teams to change and improve those metrics.
In the next section, we’ll look at various ways you can do that, and provide a simple mental model for prioritizing your efforts.
How to increase revenue performance (with 3 real-life examples from an expert)
On the face of it, the number of possible approaches to improving your revenue performance might seem overwhelming. A modest version of the process might look something like this:
- Perform market / customer research
- Win buy-in from business leadership
- Achieve alignment with other departments
- Optimize your pricing
- Focus on improving high ROI metrics (like retention and churn, CLTV, and conversion rates)
But, with a bit of thought, we can simplify this dramatically:
Only two ways to increase revenue
In $100 Million Offers, business guru Alex Hormozi says there are really only three ways to increase revenue:
- Get more customers.
- Increase a customer’s average purchase value.
- Get the customer to buy more times.
Points two and three, he goes on to say, are really just one point: Increase customer lifetime value (CLTV).
So, you need to get more paying customers, or you need to increase the amount a customer spends with you before they leave. Either by paying more for the stuff they already use, or by paying you more times for more things. (Think upsells and cross-sells.)
New pricing models can help you achieve this, too, but only if the pricing changes don’t cause a drop in the number of paying customers you have (either through higher churn or lower conversions) large enough to offset the additional profits from your new pricing model.
Stewart Townsend
3 revenue performance-boosting examples from an expert
At the core of any revenue operations model is Go-to-Market alignment. If you want to achieve alignment, you need to have a common language, and a common goal, with other stakeholders across the business.
Katyusca Barth, Global Head of Revenue Operations at ITRS Group, gave some in-depth examples of ways to drive revenue performance in her presentation at the Chief Revenue Officer Summit in 2022.
Here are three of them:
- Achieving alignment by creating a common language.
- Using data and intelligence to optimize your pricing strategy.
- Auditing tech stacks to identify operational inefficiencies.
1)Create a common language
Katyusca’s first example shows how tackling creating a common language can help you achieve alignment, in turn helping to convert more leads into paying customers, thereby increasing revenue.
In Katyusca’s words, here’s an example of how common language is an important driver for revenue operations.
"Here’s the problem we were facing:
"We were in a post-acquisition, PMI scenario. We had a pretty aggressive cross-sell target. There was a lot of investor pressure, and we were behind.
"When we started looking into why we weren’t getting there, we had different sales teams, different sales coaches, and different processes.
"We were still operating in three different CRMs at the time, and there was significant pressure on the sales team to build that cross-sell pipeline, which was one of the key reasons for the acquisition in the first place.
"So what did we do?
"The first thing was to create a common language and map where and how we could connect the various parts of our fractured pipeline together.
"We also created a cross-sell program, which helped us focus the sales managers.
"Another of our challenges post-acquisition was we had a huge influx of prospects for each part of the business, so we leveraged product and usage intelligence to build a list of targeted accounts…
"But the question was: Where do we go first?
"Helping our managers prioritize which leads to target alongside the rest of the pipeline was critical. Having that intelligence, connecting it, and creating that common language is what really helped us drive that cross-sell.
"We increased the pipeline by about 200% after implementing this cadence, and took away a lot of distraction from the sales managers, helping them focus on the cross-sell."
2) Leverage data and intel
Katyusca’s second example shows how she was able to win more customers, and increase CLTV with more effective pricing models and upsells.
"The second example is about intelligence, and it's one of my favorites.
"A long time ago, I was a deal desk, which is the most ungrateful job anyone can ever have. In this scenario, there were almost 400 salespeople in the organization globally. It was a very transactional, high-volume kind of business.
"We had very driven sales managers driving their pricing and deals on a quarter-by-quarter basis.
"As a deal desk, though, there were some behaviors that were quite harmful. But it was really hard to translate that into something actionable and get managers to listen.
"So fast-forward a few years. I’m Head of Ops, and I built a pricing model with our pricing analyst that we fed into a Business Intelligence (BI) tool. We loaded five years of pricing and discounting behavior on the sales team into it."
"Here are a few things that pricing model helped us accomplish:
One:
"We found that, a few years prior, this company had a major price model change. After the change, there was a clear dip in the model — it was showing that the changes to the pricing model were harming sales.
"So, as a result of that pricing analytics program, we could see (and roll back) harmful changes to pricing models."
Two:
"We were able to simplify the customer journey by altering our pricing. We reduced the complexity of our invoicing, and in the number of price points offered to the customer."
Three:
"We also started sharing our data globally. Every sales manager had their team's pricing behavior available at their fingertips at all times.
"This gave us a case to suggest small but mighty behavior changes.
"We set a target for sales teams to price 5% more on their user charges, for example. 5% is a small percentage, but this had a massive impact on our revenue: For the first year, we managed 30% year-on-year growth.
"I checked in with my friend who's still there, and to date, this model has generated over $60 million just directing on best pricing practices.
"It took a number of years, and it took people trusting the facts we were presenting to them, but without that data and analysis, this wouldn’t have been possible."
3) Audit your tech stack
Katyusca’s final example is about how tech stack inefficiencies can block your business from maximizing its revenue performance.
"One experience I had as a business analyst (BA) springs to mind.
"I was a new BA on the IT side, working on Salesforce enhancements. I took on a project where our legal team had purchased a new piece of software.
"This software was not compatible with how we did business. But we’d bought it, and had a contract of about a year with it, so we had to implement it.
"It was obviously a nightmare. The tool didn't fit how we were selling, and how our sellers were behaving.
"I can’t emphasize enough the importance of having a team that’s responsible for owning the full tech stack for Go-to-Market. And from then on, it became a real passion of mine to think about tech stacks and productivity tools.
"When you have siloed decisions, like what happened with that legal team, one team might buy a piece of technology to solve a problem, but that tech can create new problems of its own in other teams.
"If you’re not careful, you can find yourself with a very expensive tech stack, a lot of overlapping technology, and low adoption. Then you have conflicting data, telling you different things, and you undo the hard work you did creating a common language and common goals.
"To fix this, we did a full evaluation, and spent two months looking at what our users were doing. We looked at adoption data, who was using the pieces of technology, and what they were doing with it.
"We now find ourselves with a 25% reduction on our tech stack run rate in terms of cost. We've replaced two systems our teams weren’t using, and we found other tools that would better serve our purposes.
"This has significantly changed the experience for our teams.
"Ultimately, you can have a lot of data and tools available to you, but the experience of the sales users and people in the field is going to drive how good your data inputs are — and therefore your data outputs."
