The Mathematics of Growth

It’s early January, and you are staring at twelve months of open road. No bad first quarter to overcome. No end of year deals to close. No dwindling marketing budget to stretch. Just twelve months of pure optimism.

Of course, you have a growth target. 5%? 10%? 15%? More?

How will you get there? The more you stare at the growth target, the more overwhelming it becomes.

There is an old riddle that asks, “How do you eat an elephant?” Of course, the answer is, “one bite at a time.” The lesson is that achieving daunting goals can only be accomplished by breaking them into smaller, logical parts. To achieve a revenue goal, some people simply break the yearly goal into monthly or quarterly goals. While the smaller number might make your heart beat slower, it does nothing to develop a definitive course of action.

As an alternative, we’ve developed an approach we call Components of Growth. Mathematically, we disaggregate growth where you’re target revenue equals =

Base Business + Net Churn + Net Economic Growth + Net Price Change + Gap Closures + Growth Initiatives

Channel sales and marketing managers need to develop different strategies for each of these components of growth.

Base Businessalthough the percentage and rate may vary, every company has repeat buyers. Do you know the size of this segment? Do you know which customers (and partners) fit here? If yes, you need to keep this segment content, however, you may be able to reduce the amount of time you spend here.

Net Churnsome of your base business will erode every year (luckily, the same is true for your competitors). You and your channel partners need a separate plan to identify and retain wavering customers. Similarly, you need a rapid response plan to capitalize on miscues by competitors.

Net Economic Growththe economy will rise and fall apart from any steps you or your company takes. However, you can target the economic winners, de-emphasize the economic losers and implement tactics in response to the economic ebb and flow. For example, focusing on lower price products, cost-reduction messages, and channel financial “health” in the face of an economic downturn.

Net Price Changeprice increases can alleviate some growth pressure . . . as long as the quantity of sales doesn’t fall faster than prices go up. The reverse is true for price decreases. Price increases require working with partners to sell the continued value of your products. Price decreases often mean pushing into new channels and customer segments in search of additional volume.

Gap Closuresmany companies, possibly yours, have distribution gaps – in certain geographies or industries. To maximize growth, your sales team needs to assess the number and mix of channels region by region, industry by industry, customer segment by customer segment.

Growth Initiativesindividual growth initiatives provide the greatest upside potential, but also the greatest risk. These initiatives can include new product launches, adding new types of channels, entering new customer segments or application areas, selling solutions or services in addition to tangible products, etc. Each of these initiatives requires a separate channel plan.

You’ve got twelve months. But, do you have a plan for each component of growth?

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