Revenue Growth Objective

Revenue growth is an important goal of any performance management system. Higher volumes mean companies are leveraging their fixed costs to create additional value.

Revenue consists of a quantity measure (such as units sold or number of customers) and a ‘revenue per quantity’ measure (such as price per unit or average purchase amount). While total revenue itself can be modeled (as it is in most of these case studies), it is usually more informative and accurate to model the components that combine to form total revenue.

Revenue-related measures often exhibit seasonality, and are affected by many factors that are either not controllable or only somewhat affected by company actions – such as the economy, demographics, competitive actions, etc.

At its most general, successful revenue growth depends on providing what customers want – the right product, at the right place and time, at the right price. Revenue analysis must be able to evaluate performance in all of these areas for revenue growth to be maximized.

Revenue can be modeled in a variety of ways. Total revenue dollars can be modeled, but this method obscures the factors that combine to form revenue. It is usually more meaningful to analyze the components of revenue. For example, revenue can be related to the number of customers, and the number of customers can be modeled and forecast.

The case studies below provide a variety of examples on how revenue can be modeled using Performance Chain’s™ analytical techniques.

Target sales analysis

Target department store monthly sales from 1989 to 2003 are analyzed. This example adjusts for Target’s 4-5-4 calendar, and a 53^rd week in 2000.

Airline revenue passengers enplaned

This analysis of airline passengers enplaned for American, United, and Southwest airlines reveals differences in performance characteristics, and illustrates how accurate forecasting of trends requires detailed analysis. It is an example of an operational driver of revenue.

Airline Model Types

United Airlines has been buffeted by a number of factors in the past decade. This case study reviews the events that have affected United’s performance and shows three ways to model the airline, from simple to complex. See part three for a more detailed model of revenue that includes operational measures.

Assets / net income relationship

This case study relates net income to asset size for three financial services firms. There appears to be some relationship, but there is a lot of volatility, suggesting other factors are also affecting net income. Although it models net income instead of revenue, these same principles would apply.

Revenue Growth