Achieving strategic business goals using revenue analytics
What does healthy revenue growth look like? That is a deceptively simple question. Steady overall revenue growth should equal a healthy book. What more is there to say?
But what if there’s a deeper reality? One that’s not evident when we only look at cash-in-bank. Rather than simply looking at a snapshot of current income, we can use revenue analytics to understand the patterns that determine cash flow risks and ongoing sustainability.
Strategy, meet reality
Let’s consider a scenario. The graph below refers to an advisory practice specialising in investments and risk. The product portfolio is essentially comprised of an 80/20 split. (A small amount of income is derived from direct fee-for-advice, health and short term products, but these are peripheral).
The practice has carefully assessed its strategic position and made the choice to adopt a predominantly as-and-when commission strategy at the start of 2019. However, as things stand, the practice still derives 16% of its revenue from non-recurring income. Much of that 16% is up-front commission connected to the 20% of revenue generated by risk products.
But that raises a question. Given the conscious effort to pivot to an as-and-when approach, why is that percentage still so high?
Digging into the revenue data
Let’s look deeper at the analytics. We’ll start by considering overall historical revenue:
On the one hand, we see a steady and welcome trend. Steady growth year-on-year, presumably due to new clients added to the book. Organic growth steadily accumulates over time.
However, we can also note sharp month-to-month fluctuations in revenue over the course of each year. These fluctuations are likely linked to up-front commission connected with risk products. For instance, a spike occurring in the same three month range in two consecutive years could simply be the first and second year commission. Whereas a steep dip could be a significant lapse.
Instead of building steady annuity income, when we zoom in, we can clearly see more turbulence than we might deem tolerable. Let’s see whether an even closer analysis confirms that hypothesis.
For Investment:
For Risk:
As anticipated, investments show steady and consistent revenue growth. By contrast, revenue linked to risk products fluctuates significantly month-to-month. Of course, we still haven’t gotten to the bottom of our inquiry into why the practice is still behind it’s goal to pivot to a more as-and-when approach. Let’s keep going.
The sum of its (variable) parts
The practice’s book is not something that’s just a given, it’s the product of the sum of all the advisers’ sales strategies.
We can now distinctly see individual sales strategies that produce sustainable annuity income, in line with the practice’s overall strategic goals. For example, our two top producing advisers seem to be following two very distinct strategies. One has aligned her strategy with the practice’s approach, whereas the other seems to have missed the mark.
From the start of 2019, Adviser 5’s trendline can be seen flatlining as she presumably adjusts to an as-and-when approach. In contrast, Adviser 2 clearly didn’t attend the same strategy meeting and is still focussed on upfront commission. Merely looking at the overall revenue could never provide that level of distinction and insight.
Case closed?
At this point, it’s tempting to think we have everything we need to make more strategically informed decisions and drive sustainable revenue growth.
As always, though, there’s more going on. Looking at product split tells us part of the story. A very powerful part of the story. But it’s not the whole story. What about the clients themselves?
After all, if older clients tend to generate more investment income, and younger clients are more eager for risk products, should the practice focus on aggressively selling to older clients?
Things are a little more complicated than that, as we’ll see in our next deep dive into revenue analytics.
