Good Growth diagnostic evaluation

Basic diagnostic methods

  1. The only 4 ways to grow
  2. Segment according to the 80/20 rule
  3. Segment according to customer behavior (Customer retention)
  4. Purchase frequency
  5. Revenue by product or service

 

The first of the 5-chapter performance evaluation is revenue growth.

Practitioners of our Business Health Test mention

“I can show the results but how can I help the improvement process”.

This diagnostic evaluation process is aimed at helping you through that journey.

Remember you goal is to identify where improvement or opportunity lies. Management will know how to take your analysis and make it actionable.

Growth is measured by the % increase in net revenues from one period to the other.

The concept of good growth measures how growth impacted profitability and balance sheet performance.

Good growth is reflected where the growth produces improved profitability with the same of less working capital per $ of revenue

Notice that we say good growth is the combination of how growth be it up or down influences the income statement (profit) and the balance sheet (working capital)

Before you deploy any of the diagnosis methods below review your ability to increase prices.

The following questions could be helpful.

  1. When last did you increase prices?
  2. Do you have customers that are less price sensitive?
  3. Do you have products or services that are less price sensitive?
  4. Are there any customers, products or services that have incurred significant price declines that need to be revisited?
  5. Are there any new customers that have been created with low entry prices that have not migrated up the value chain?

The basic diagnostic methods that we use to evaluate growth quality include

  1. The only 4 ways to grow
  2. For business that have ongoing customers
  3. For business that have one off customers that deliver a similar type of product or service
  1. The only 4 ways to grow

This matrix is always a good starting point. Identify your existing products and services and your existing customers. New customers would include customers attained within the last 12 months. New product or services would include those developed and brought to market within the last 12 months. Of course, you can modify the time frames to suit your analysis if so required.

Current state review

Growth 1

Compare the results with:

  • Your expectations
  • Your strategy

Future state review

You can use the same matrix to define what you want your business to look like in the future. This can be done by replacing the previous period heading with the current period and the current period heading with the future period.

The future state review is helpful when you are considering the entry to new markets or introducing new products and services.

Remember as you migrate from your current customer and current services or products the potential for risk increases

Growth 2

The same matrix can be used to design your one-page strategy as shown above.

  1. For business that have ongoing customers

Here the secret is in segmentation

Evaluate how your customers are growing based on say the top 10 the mid-tier group and the smaller group

growth 3.png

2.2. Segment according to customer behavior (Customer retention)

 Knowing how your customers behave can be very useful especially when you integrate this with the way you manage your margins.

growth 4.png

2.3. Purchase frequency

Segmenting you customers according to purchase frequency. The frequency that you set should be defined based on the business model.

growth 5.png

  1. For business that have one off customers that deliver a similar type of product or service

growth 6.png

Reviewing the performance of each defined product or service can tell you about the effectiveness of each value offer.

By now you should have an idea of the various ways that you can segment your revenue to help decide where you should focus your business priorities.

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Wednesday, 12 December 2018

Mick Holly & Andre Gien

Wealth Scientists

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