We’ve all heard it: “If you’re not growing, you’re dying.” What does this really mean and what’s the best way to define growth?
One of the most common goals, or key performance indicators (KPIs), is to increase revenue, usually meaning sales. This article will give context and set the stage for choosing the right KPIs for your organization. The next article will explore aspects of various revenue-related key performance indicators (KPIs).
I am a strong believer in continuous growth and love figuring out ways to do things better (that’s a broad statement, I know, it’s intentional). The problem I see is so many people equate growth to top line, or gross, revenue growth. Organizations need to dig deeper and ensure that the agreed upon KPIs align with the actual desired results. Set yourself up to get what you asked for.
Let’s take an illustrative example where top line revenue growth is the only KPI that is measured and your culture and incentive systems are geared accordingly. You might see reasonable employees who feel motivated and/or pressured to increase top line revenue through the following:
- play with numbers — offer extravagant customer discounts or structure sales knowing there will be returns (neither show in top line revenue in most accounting systems);
- compromise quality – cut “small” corners to reduce cost and price for higher volume;
- overpromise – this builds sales while also building a dissatisfied customer base;
- commit ethical breaches –lie to customers or even falsify sales (re: Wells Fargo).
And that’s just a small sample of some behaviors that would certainly increase revenue growth in the short term yet would decrease profitability and net income in the short and/or long term.
Back to the main question, what are you really after? Higher net income? Stronger profitability? More customers? A more diverse customer base? More repeat business? More predictable cash flows? Because you personally want to make more money? To build reserves?
The answer frames the selection of the right revenue growth KPI for your organization. When we know the true motivation we can develop goals and plans that are tailored to our success. This includes incentivizing and inspiring employees to drive the intended outcomes. We also open up additional paths to identify strategies that deliver results.
