Managing Revenue

Large organizations as well as the smallest business entities have their own business models and budgetary plans for generating revenue and profits. Here, we will be looking in more detail at some key aspects of a typical business model for generating revenue.

  • Most organizations sell multiple products rather than a single product. They need to have pre-defined plans in respect of each of the products they market. A trading, organization would plan for the type of products to trade in, if not the specific brands. A manufacturing company should make plans on the different technologies and innovations they will use for the manufacture of a range of products. Service organizations should plan in advance for the types and modes of services to be provided. Whatever the plans made, organizations should adhere to them in producing and marketing their merchandise.
  • After selling a product mix over a period of time, you would come to identify the most profitable products/services, in addition to quite profitable, not so profitable and also the unprofitable items. Selling the most profitable products only would maximize revenue provided they could be sold in reasonably large quantities.
  • A sale is said to be complete only after the money is realized. If you took too long to collect debts, your cash flow suffers depriving you of much needed working capital for maneuvering the business well. Select customers who pay on time and sell as much as possible to them. However, keep in mind that selling to a customer who does not pay fast, but buys in very much larger quantities could sometimes be more profitable to you. Hence you need to be more analytical in deciding on   which customers to target most.
  • Identify the products/services that contribute the highest margin per unit towards your fixed overhead, and maximize their sales. Don’t forget that it is ultimately this margin that contributes to your cash flow as well.
  • If market research indicates that there is a better demand for your products compared to those of your competitors, it is a positive case for raising your prices. Conversely, if the demand for your products is slack in the face of stiff competition from other contenders, consider reducing your prices to gain an advantage on them. Encourage customers to buy in larger quantities by granting volume discounts.
  • At times of high inflation and rising prices, your sales could be giving a false picture of improving sales year after year when in actual fact you may be selling less. In order to be correctly informed, record the quantities too alongside your net sales figures for the organization’s internal use. If you look after the unit sales or quantities well, the sales amount will just fall into place.
  • In respect of products enjoying a high demand and especially with regard to seasonal and customized products, you are at an advantageous position to negotiate for advance payments from customers to reserve their requirements and ensure continued supplies.  Apart from its cash flow benefit, it facilitates the planned production to actual customer requirements. Customers who are noted for delaying payments may be asked to keep a sizable deposit on a continuous basis or face the possibility of being refused supplies. Alternatively, customers could be asked to make progress payments so as to keep a margin at a fixed percentage on their outstanding order values as at any given date. Progress payments could also be arranged so as to cover all debts except those falling within 30 days.
  • Sales of small values should not be given on credit, since the costs of invoicing, following up and collecting would far exceed their profit margin. Consider giving cash discounts to encourage cash sales at all times.
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