Quality of Revenue is Worth Pursuing

Once revenue comes – pivoting to quality of revenue is critical.

Sai Kumar Chandran

Running a business effectively and efficiently to maximize revenue is critical. No business can survive without it. However, in the last 15 years, management pundits have increased their call to action on another subject: Quality of Revenue.

Whether you are a product company or a service company, it is worth your while to start looking at what’s happening while you are earning your revenue. Here are some questions to consider:

  • Is my revenue, adding to just the top-line and my valuation? Or is it really helping build a bottom-line?
  • Is my bottom line sustainable?
  • (Especially with service revenue) With each passing year, as I rebuild my revenue levels, will I have the ease of attaining previous levels?
  • Is my revenue also coming with real advocacy from my customers?
  • Is my revenue journey and learnings from there, helping me build my organizational capability and brand presence? (Especially, is my fulfillment work helping me do this?)
  • Is my revenue journey and learnings from there, helping me better my internal processes and systems?
  • l Am I either or both moving up the value chain and increasing my spread of revenue sources, as my revenue grows?

I am sure there is a long list of such questions that will emerge if you want, as you work with product, service, financial and other experts around you.

Begin here: Google this topic or go and chat with some experts out there. And collect ideas that will move you along the road on this. Here are some samples:
High-quality revenue creates a sustainable competitive advantage and provides long-term shareholder returns. Superior businesses generate revenue that is predictable, profitable, and diverse. The quality of revenue differs depending on the business model, and this affects the long-term growth of a company.
Source: https://seekingalpha.com/article/4463802-quality-of-revenue-important-for-business-sustainability 

Focus on growth and growth alone is always a temporary strategy. Over time, a company’s value becomes a function of both growth and cash flow. Superior earnings eventually lead to superior value creation. Put another way, quality (i.e. sustainability) of revenue matters as much as quantity (i.e. growth) of revenue. High-quality revenue has three main characteristics: predictability, profitability and diversity. So in addition to looking at year-over-year growth, you should be looking to these three metrics to drive long-term value
Source: https://hbr.org/2013/02/what-high-quality-revenue-look – What High-Quality Revenue Looks Like

Once you have read, spoken with experts, and researched enough, you will come to the same conclusion I started this article with: Once revenue comes – pivoting to quality of revenue is critical.

So, action item: Put your initiatives or projects in place to get there. Also, make this shift in anything between the next 6 quarters to 5 years. The journey itself will be rewarding.

While you embark on this journey, you will have several temptations, especially if you are playing the top line and/or the valuation game. Hence, keep the following in your mind as a guardrail.

When focusing on Quality of revenue (QOR):

  • It will be tough to attain – but it will create a trajectory of sustainable revenue 
    • It is the work that you and your teams will put in to create the quality of revenue that will be the real differentiator. Such efforts in QOR first help the way you view your finances: in, out, retained, deployed, quality of deployment, and so much more. This will start becoming the regular lexicon. Such focus itself will make the organization financially intelligent. From not leaving money on the table to only taking what really makes sense, much will change, creating a trajectory of sustainable revenue.
  • It will be tough to service – but will force you to create capability in the organization
    • Quality of revenue comes with the quality of work. This will push the business and people up the value chain. From org design, to work design, to skills, to systems and processes, much will have to change in this journey. Hence, the QOR journey is also an organization-building journey. This, while delivering to clients, customers and consumers will only increase the pressures of running a business in the short to medium term. But once done…well, it will be just the place to be.
  • It will be tough to sustain – but this will build the brand identity
    • We become known for what we do and how we come across repeatedly. The same applies to organizations. However difficult it might be in the short run, when an organization focuses on QOR the market starts taking notice. If done beyond 3 to 4 sales cycles (especially for long sales cycle companies), the real shift of brand identity will start happening. The market will then know that it was not just a management gimmick but a real Leadership and Management shift: i.e., philosophy, strategy, and execution shift. That’s what brand identities are made of: the niche.
  • It will be tough to replicate – hence build a competitive barrier
    • In almost all industries, barring patent-driven things, almost everything has a short shelf life or low imitation barrier. However, the complexities involved in shifting QOR are not something your competitors can quickly lift and shift. The journey, changes, people, systems and more contain the organizational learnings on the QOR. Often this is the biggest and most comprehensive barrier to competition one can create.

Now, I am tempted to call out names of organizations to each of the points above, but I will refrain due to the nature of my work. However, look at the software majors / innovative start-ups, some leading banks across the world that have a positive reputation with people and regulators, product companies that are known for innovation, pharma companies that are known for their ethics… and any other company which has been the darling of clients, customers, and consumers, and you will have some lessons to learn on QOR.

I will again say this: focusing on revenue is non-negotiable. However, once revenue comes – pivoting to quality of revenue is critical. It may even help if you as a business leader can constitute a team that works with you on this subject for the next few years.

But like I said earlier: begin by learning a little more if this is a new subject that has come to your attention. And, if you already know about this, then, this might be just a reminder that it is time to act!

Sai Kumar Chandran is the founder of OrbitShift. He is a coaching and consulting practitioner and an entrepreneur at heart.
He can be reached at saikumarchandran@orbitshift.com.

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