Why is Revenue Important? It’s not the obvious answer.

When an Operator is building a new growth consumer products business or making radical changes to an existing stagnant business, there is a proven path a company must travel.

The path starts with a handful of Operating Disciplines that every great company has mastered.

The most obvious Discipline is Revenue.   Young Entrepreneurs think the more revenue, the better. You can view Revenue as some sort of popularity contest. People like my product so my revenue is growing and I’m cool.  

The real power of Revenue isn’t the actual number or Year over Year growth % (although these do matter), it’s:

1.      How it can unify a growing business and

2.      The Quality of that revenue

Revenue can unify a young growing business

The Revenue Forecasting Process is the foundation of every great consumer brand. The forecast is the unifier.

Visualize a business where every leader, every employee is marching to one path. The company uses a single Revenue forecast to decide what to build in your factories. They use a single number to decide how much cash they need to build inventory and what Skus they need to build.  They use a single number to determine Sales leader commission structure. They use a single number to decide who to hire and when. They use a single number to determine cash flow needs (how much to borrow and when). They use a single number to forecast gross margin, profitability and cash flow.

Now imagine that this number has been vetted by your major customers. This isn’t their forecast, but your collaborative forecast together (CPFR); it is based on their inventory in their DCs & their stores. This number is based on, not their sell-in but, it is based on their sell-through at the register or online.

This number shows multiple different Historic trends by: Product Family, Product, Customers, Geography, Sales Leaders, etc. This number is a Forward forecast that is also sliced in multiple different ways to show the next 18 months revenue.

This number is time-based and every risk and opportunity to the company's 18 month revenue forecast is documented. Every risk and opportunity are Pareto’d and reviewed up to the CEO and COO. This list has clear action register to mitigate the risk and to claim the opportunities.

Imagine this number, monthly, is reviewed by the totality of the business leaders and all your factories/vendors.

One number to rule them all. One number where we are all wrong or all correct together. If we are all wrong, then we all have shortages or overages. If we are all correct, then we have high inventory turns and on-time deliveries.

This one number, sliced in multiple ways, is your business cadence. The drumbeat. The Unifier.

This is your revenue Sales and Operations Planning process (S&OP).

Quality of Revenue.

They say, “Revenue hides all problems” and this is absolutely true.  Shitty Gross Margin, brand dilutive customers, over spending on staff and offices, daily lunches & trainers, and so much more can be hidden by year over year (YOY) revenue growth.  It can make you fat and lazy.

A young company that just landed their first large Costco or Amazon order is going to celebrate. For people who have built Branded product, it could be the death of your Brand.

The reality is that thoughtful, quality Revenue matters. Are you selling reasonable margin into aspirational retailers that resonates with your core customers? How your product merchandised? When you sell-in does it sell-through at the register/online store? Can your supply chain meet the retailers demand?  Is the revenue Brand accretive and Margin accretive?

Not all revenue is created equal. Be thoughtful on limiting YOY revenue growth by defending Brand and Margin. You are building a multiyear Brand. Don’t maximize every revenue opportunity and Ed Hardy the shit out of your brand.

Great businesses understand the value of their revenue, not just the size of their revenue. They know that slower revenue may give a brand & company longevity.

Great companies understand their sales hierarchy and stick to it (more on this later).

Measure an Operating Discipline (Revenue), measure their Levers (there a ton here), throw a Lever and watch it. This is what Great companies do.