Revenue Enhancement

 What is Revenue Enhancement?

Constant efforts are directed toward increasing revenues earned by taxes remitted by individuals, corporations, and other tax-paying entities. On the other hand, private companies must find innovative ways to boost revenues to survive perpetually.

Governments widely use revenue enhancement, but it is not purely limited to public entities alone.

Every business works towards earning profits. Profits are the result of revenues earned. Cutting down on costs has been the most used method of increasing profits. However, post a point in the business trajectory, reducing costs is not always viable.

A cost-savings strategy is often adopted during the early stages of the venture. Once that low-hanging fruit has been devoured, the business needs to transition towards a more sustainable option.

In the long run, for lasting benefits, the organization needs to implement a dynamic business management system to plan, implement and evaluate business processes that ultimately enhance the revenue figures recorded by the business.

How to Enhance Revenues Without Affecting Profit Margins

Having understood the need and implications for enhancing revenues across public and private sectors alike, let us take a deeper look into how revenue enhancement works for them.

Public players can enhance their revenues when governments and public entities work toward meeting the needs and demands of society. More often than not, the government runs on a deficit budget, forming an inability to meet the citizens' demands. 

They are constantly searching to uncover ways of raising revenues to fund this deficit and infuse it into developmental activities for citizens. 

Some methods that governments usually adopt to raise more revenues are:

1. Increase tax rates for individuals in the high-end brackets

As we know, there are various tax buckets under which taxpayers fall into. Higher tax rates are levied on taxpayers included in the higher-income pools. 

When the government needs funds, it often increases the high-end tax rates. This helps cover the deficit and also aids in decreasing income inequalities to some extent.

Increasing tax rates for ordinary payers is not feasible, as it might cause several market distortions.    

2. Tax carbon emissions

Economies worldwide have stressed the need to build an environmentally friendly business atmosphere. 

In pursuit of this, taxing carbon emissions is considered important, not only to help increase revenues but also to shift to environment-friendly processes. 

Revenue Enhancement for Private Players

Every business needs to be scalable and sustainable to survive the increasing competition witnessed. 

The revenue strategies must be dynamic to boost revenues while improving the bottom line. Some ways to enhance revenues for private players are 

1. Undertake benchmarking exercises

Companies track and evaluate various business metrics periodically. Benchmarking these metrics against the figures of top players in a comparable business size industry is a key step in determining future strategies.

This benchmarking exercise helps the company understand the gaps in the current revenue model and presents the management with opportunities to exploit further, thereby enhancing the revenue figures.

2. Understand options, review probable outcomes, and set achievable targets 

After understanding the market landscape and dynamics, the business needs to scout for available opportunities and devise possible options for various scenarios.

Multiple options may be available, such as increasing the addressable market size, implementing revamped marketing strategies, and entering new markets and product segments, to state a few.

The next step is to assess possible outcomes from each option, analyze the cost-benefit situation, perform sensitivity analysis, and circle down on the most profitable option. 

Having decided on the options to build on, the business now needs to set realistic and achievable targets in line with the company's overall goal. These targets need to be constantly monitored, periodically reviewed, and tweaked as may be necessary.

3. Let go of low-margin clients

The customer base of any company consists of a mix of low and high-margin clients. The company needs to analyze the revenue contributions of each segment and align them with the targets. 

Eliminating clients yielding a low margin opens the resources tied up for a shift in focus to the high-margin clients. 

steps to enhance revenues

Increasing revenues to make more money is not as simple as it sounds. Nevertheless, enhanced revenues are positive for the business, resulting in improved profit margins. 

The primary focus here is to understand what needs to be done differently at the strategic level.

Assess various business components and analyze their respective profitability 

Every organization requires harmony within its multiple components to run efficiently. This makes it necessary to periodically assess the operations of these components, evaluate the profitability, and benchmark it against leaders amidst various market players. 

This exercise presents avenues to improve, which ultimately enhances the revenue. Regular profitability analysis based on various facets such as services, products, business lines, geographies, client accounts, and demographics is a major step in the decision-making process.  

Evaluate options and transform them into a working plan

Every goal can be achieved in more than one way. Similarly, every business aims to increase profits. This goal can be achieved via various options such as increasing market size, increasing prices, fielding out unprofitable client accounts, optimizing costs, etc. 

A detailed assessment of every available option needs to be conducted. Scenario analysis needs to be undertaken for every alternative. This will provide the business with the most feasible and profitable option.  

Having decided on the best option possible, a business plan must be drafted to execute the strategies to achieve the same. This plan needs to be detailed and targeted toward enhancing revenue.  

Do not be heavily dependent on discounting

Advancing discounts is a popular and widely seen strategy adopted by organizations worldwide. However, discounting is an easy option but not a sustainable one. 

Frequent discounting can impact the bottom line negatively. Heavy discounts mandate greater sales to offset the impact, ultimately getting the business stuck in the same position as earlier. 

1. Pick out the low-margin clients and business processes

It is crucial to determine the inefficiencies in business processes and eliminate them to yield better outcomes for the efforts invested. 

As we all know, not every client is necessarily profitable. Therefore, analyzing and figuring out the not-so-profitable clients is essential in increasing revenues.  

2. Set realistic targets and conduct periodic reviews

Every business is unique; accordingly, the business targets of every organization are different. These targets must be specific, measurable, achievable, realistic, and targeted.

Next comes regular follow-ups, periodic reviews, and systematic process improvements to ensure the business development efforts are on track. This will aid the business in enhancing revenues and improving profit margins.  

ways to find new revenue streams

Running a business in the current times is a challenging task. Managers must be creative in diversifying cash flows and tapping new revenue streams. Some of these ways can be understood as follows - 

• Fix the leaky ends: Process automation and streamlining are effective methods of optimizing the cost structure. However, gaps must be filled at the earliest by understanding data and acting upon it. This way, the business uncovers reselling and re-engaging customers, thereby improving the revenue figures.
• Transition your business model into an adjoining industry: Every founder must have a deep understanding of their business model. Time and again, they need to think of ways by which they can translate their existing business model into a similar industry under distress. The trick here is to change your lane, not your entire route. 
• Capitalize on trends: As times change, the categories of industries thriving in the market change. As a result, business managers need to see where mass spending is happening and tap into the consecutive trends.  
• Focus on value addition: Business activities must be such that they add value to the customer base in one way or the other. Sustained value addition results in customer stickiness, which ultimately enhances revenue graphs.
• Reinforce the brand: Capture every opportunity to engage with a wider audience pool through active collaborations, content creation efforts, upselling and reselling activities, and diversify into additional product and service offerings. These efforts increase revenues by milking the target audience segments further.

increasing revenues from existing customers

As seen above, expanding into newer markets and revenue streams is the most frequented path of implementing revenue enhancement strategies. However, one efficient way of boosting short-term revenues is by focusing more on the existing customer base. 

A broad set of steps to increase revenues from current customers is as follows - 

1. Frame a list of customers and clients serviced, laying out the products and services offered.
2. Identify cross-selling and up-selling opportunities from the list frame.
3. Mark out the customers purchasing only a specific set of offerings from the entire catalog and identify additional offerings they can provide.
4. Undertake frequent communications with your customer base, informing them about the product or service portfolio, promotions, and marketing campaigns.
5. Marketing and public relation activities need to be regular and consistent. Never let the customer forget your brand; always stay on their mind.
6. Implement loyalty and referral programs to retain customers.

Focusing on the current customer mix effectively drives short-term revenue growth without having to invest heavily in revenue enhancement activities. Unfortunately, organizations often get so tangled in expansion efforts that they forget to milk their existing customer base.  

methods to enhance revenues

Throughout this article, till now, we have explored all the various aspects and considerations for revenue enhancement. To conclude it all, let's summarize the most effective methods to enhance revenues for any business wanting a straightforward solution: 

1. Increase the number of customers served 

Depending on the industry operated in, the business must aim at bringing in more customers or clients, which directly results in increased revenues. It is a pretty straightforward and age-old method of improving revenues. 

More footfalls, more customers in the doors, more hits on the website, and more orders placed ultimately enhance revenues.

2. Increase the average size of each transaction 

Induce each customer collected to purchase more. This is an indirect way of making them spend more, thereby increasing the business revenues. Upselling and cross-selling are the most adopted methods here.

3. Increase the frequency of transactions

Assuming every time a customer steps in, they spend a certain amount, in this method, we aim at bringing them in more often. By increasing the number of times customers visit the business store or site, the revenue collection is grown naturally.

4. Increase the prices

The business earns more every time the customer makes a standard purchase by raising prices. This enhances revenues for the same effort from the business owner's end. 

A business cannot adopt a one-method-fits-all approach. Every option suggested needs to be evaluated in light of existing conditions, future expectations, current trends, business goals, and market sentiments. 

Researched and authored by Krupa Jatania | Linkedin

Reviewed and Edited by Raghav Dharmarajan

Free Resources

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• Horizontal Merger
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• Limited Liability Company 
• Market Cannibalization