Analyzing Revenue (Beyond the Profit & Loss Report)
Analyzing revenue beyond what's found on the Profit & Loss (P&L) report is important in order to gain a deeper understanding of a company's financial performance and identify potential areas for improvement.
Here are a few ways to analyze revenue beyond the P&L report:
1. Revenue by product or service: This analysis breaks down revenue by product or service line, allowing a company to identify which offerings are most profitable and which may require additional investment or rebranding.
2. Revenue by customer: This analysis identifies the customers that generate the most revenue for a company, which can be used to prioritize sales and marketing efforts.
3. Revenue by channel: This analysis helps to identify which sales channels, such as online, retail, or wholesale, generate the most revenue for a company.
4. Revenue by geographic location: This analysis helps to identify which regions or countries generate the most revenue for a company, which can be used to inform expansion or localization strategies.
5. Revenue by time period: This analysis helps to identify trends in revenue over time, such as seasonal fluctuations or year-over-year growth.
When we work with our CFO clients, we track the following, customer retention rate, leads generated, and conversion rate. It is important to note, these are critical revenue drivers that are only available if they are actively being tracked.
This information is typicall not found within QuickBooks, and even if it is, no report presents all this information in an easy to understand and read format.
If you are just looking at top line revenue on the Profit & Loss report, you are not seeing whole story.
5 Revenue Drivers
Leads x Conversion Rate = Number of New Customers Who Purchase
Past Customers (from prior years) x Retention Rate = Number of Past Customers Who Purchase
Number of New Customers Who Purchase + Number of Past Customers Who Purchase
= Total Customers Who Purchase This Year
Total Customers Who Purchase This Year x Purchase Frequency Rate = Total Sales Transactions
Total Sales Transactions x Average Sales Transaction Value = Revenue
What is customer retention rate?
Customer retention rate is a metric that measures the percentage of customers that continue to do business with a company over a certain period of time. It is a measure of a company's ability to retain its customer base and is often used as a key performance indicator (KPI) in customer relationship management (CRM).
The formula for calculating customer retention rate is (Number of customers at the end of a period - Number of new customers during that period) / Number of customers at the beginning of that period x 100. A high customer retention rate is generally seen as a sign of a healthy business.
What is lead generation?
Lead generation is the process of identifying and cultivating potential customers for a business's products or services. It involves a variety of tactics and strategies for capturing the contact information and other details of individuals who have shown interest in the business and its offerings.
Lead generation can be done through various channels such as social media, email marketing, search engine optimization, content marketing, trade shows, events and more. The goal of lead generation is to convert potential customers into paying customers by nurturing them through the sales funnel.
What is customer conversion?
Customer conversion refers to the process of turning a website visitor, lead, or prospect into a paying customer. It is a key metric in e-commerce and digital marketing, as it measures the effectiveness of a company's sales and marketing efforts in converting potential customers into actual customers.
Conversion can be measured by the percentage of website visitors who complete a desired action, such as making a purchase, filling out a form, or signing up for a trial.
Companies use various tactics to increase conversion rates, such as A/B testing, targeted advertising, personalization, and optimization of the checkout process. Improving customer conversion rate is important as it helps to increase revenue and grow the business.
Conversion rate doesn't just apply to website visitors. Let's look at the healthcare industry, for example. Patient conversion refers to the process of turning prospective patients into actual patients in the medical field. It is a key metric in healthcare, as it measures the effectiveness of a healthcare provider's marketing and outreach efforts in converting potential patients into actual patients.
The conversion rate is typically calculated by the number of patients that schedule an appointment or show up for an appointment divided by the total number of people who were reached through a marketing or outreach campaign.
Similar to customer conversion, healthcare providers use various tactics to increase patient conversion rate such as targeted marketing, online reputation management, social media presence, patient education, and patient-centric approach. Improving patient conversion rate is important as it helps to increase revenue, fill appointment schedules and improve overall patient satisfaction.
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James Fleming III, EA
Sentinel Tax & Accounting