How to Tell If Your Business Will Increase in Revenue and Size
In business, there is an interesting metric that measures success. That metric is “Revenue Per Person,” but it is in regard to full-time employees rather than customers. If the total revenue divided by the number of employees is high, then the business is making good money without the need for a lot of people.
The technology sector has the most revenue per employee, but labor-intensive companies have a lower revenue per employee. Walmart makes $235,000 per employee, whereas Microsoft makes $875,000 per person. Microsoft employs 144,000 people to Walmart’s 2.2 million. That’s a significant difference. With that said, revenue per person is a very powerful indicator of a business’s success. If that number starts to decline, then it’s clear that a business isn’t increasing in revenue and size. To make that number go back up, it comes down to strategy, technology, and ensuring that employees are driven to succeed for the company.
Additional Growth Indicators
In addition to revenue per person, there are other ways to measure revenue and growth. They are: repeat business, profits are more consistent, there’s too much business, the industry is growing, and customers demand growth.
If a company has investors, the investors tend to favor a business model that focuses on revenue rather than growth. However, there are some companies that focus a lot on growth and see major returns. Groupon, for example, focused heavily on growth while dealing with low initial revenue. Within three years, the company made more than a billion dollars.
Although Groupon didn’t have a lot of competition, growth is important to industries that are heavily competing for the same audience. Money goes into audience expansion to counter the competition, which leads to higher revenues. When the numbers are climbing and the revenue per person increases, it’s apparent that the business is increasing in revenue and size.
Calculating Growth Rate
To calculate how a business is doing, divide last month’s revenue by today’s revenue minus last month’s revenue. This will give you the growth rate. The growth rate is the percentage of change in revenue from month-to-month. When applied to a graph, the connected data points should show an upward trend.
The above calculation gives a generalized snapshot of what is going on growth-wise, but there can be some hidden points such as new customer revenue versus old customer revenue. It is good to track that figure so repeat and new business can be tracked. If new business outpaces itself from month-to-month and revenues are increasing, it’s evident that the business is growing.
This article was originally published on conradrockenhaus.net