What Is the Revenue Throughput Model?Dec 15, 2020
If you’ve been a business owner for any amount of time, you’re probably familiar with the tireless struggle that comes with growing your business. You have visions of what your business’s future could be—but how to get there is less clear.
Today, I’d like to introduce you to the concept of revenue throughput—a method I developed over 15 years ago to help business owners analyze “the volume and velocity that revenue flows through your business”.
Of course, there’s no end to the books, blogs, and podcasts you could consume about business growth. But here’s the problem we’ve seen business owners run into again and again when they try to grow their business like that: every resource out there can tell you what to do about how to improve a minute area of your business.
What they won’t be able to tell you is what your business actually needs in order to grow—how to get a birds-eye view of your business so that you can get all those minute areas working together for growth.
To do that, you need a “systems-approach” to your business and its growth. Meaning, you need to learn how to look at your business as a system, one with many parts that are put together for a singular purpose: driving revenue.
A car engine has one purpose (turning gas into movement), and all of its parts exist to support that purpose—nothing is superfluous. And when you fix a car, guess what? You have to check that each of those parts is doing its job.
But when it comes to business growth, so often business owners are told they have a marketing problem or a sales problem. But that’s just one part of the system. So what we’ve done is develop a system that breaks down your business into 8 major parts—so you can investigate each part to see how they impact your growth and how to make them work together.
The "Revenue Throughput" Approach
If you’re in an industrial category, you’re probably familiar with the term “throughput”—but if not, let’s define that. Throughput means “the amount of something (such as material, data, etc.) that passes through a machine or system.”
Applying this concept to your business, Revenue Throughput is “the volume and velocity that revenue flows through your business.”
It is a way of analyzing the efficiency of the system that is your business, and helps you troubleshoot what hinders your ability to produce more revenue. It asks the question,
“Is your business efficiently turning opportunities into revenue? And what things are hindering your business from producing new revenue?”
I helped develop the concept of revenue throughput a while back with an investor named Doug Crisman. Over time, it turned into the basis of how we help businesses improve their revenue efficiency, generating opportunities and turning them into new revenue. It’s since become the secret sauce that makes our Revenue Throughput System so effective.
What Is Revenue Throughput - The Three Pillars
There are three main benefits of adopting a “Revenue Throughput” approach to your business growth. Let’s revisit our definition above. Revenue throughput is “the volume and velocity that your business converts opportunities into revenue”. From there, we arrive at the three pillars that make up revenue throughput.
- You get a birds-eye view of the “system” that is your business.
- You see how each component of your business is impacting your revenue generation.
- You can optimize each component to maximize its contribution.
Pillar 1: A Birds-Eye View of Your Business System
There are quite a few ways you can think about your business, but I’ve found the model of a system to be the most useful. Why is that?
The first benefit of taking a system-based approach is that a system has a defined goal that makes it easy to tell if it is working or not.
What is the system intended to produce? Is it producing enough based on what you need from your system? If the system is not performing its intended function well enough (or at all), you know it’s time to troubleshoot your system.
That takes us to the second benefit of taking a system-based approach to your business. A system has clear, organized components - each with their own specific purpose. When the system as a whole is not performing well, it makes it far easier to troubleshoot which components are faulty.
Think of it like a pipe with valves that control its output. In order to get water in one side and out the other, each valve needs to be open. If water isn’t successfully passing through the pipe, it makes it easier to troubleshoot each component one at a time. We’ve identified eight “valves” that are critical to your business’s Revenue Throughput.
For many business owners, when revenue has plateaued—or worse, declined—the process of troubleshooting can quickly become overwhelming. A system-based approach provides you with a clear, definable set of goals and an organized method comprehensively to assess each component to find where revenue efficiency is being lost.
Pillar 2: How is Each Component Impacting Revenue?
There’s a common principle among businesses and organizations that informs our second principle. If I were to ask 50 business owners what their primary “why” is that drives their work, I’d get a variety of answers. It could be the opportunity to create generational wealth, providing jobs to their community, or finding satisfaction in the work itself.
The common principle is this: all of those motivations and goals require revenue. Like the old saying goes, “Money isn’t everything in life, but it sure helps!” No matter what your aspirations are for your business, it requires revenue to accomplish it. Every business needs reliable revenue.
Now here’s where this fits into the Revenue Throughput model. If your business is a system designed for a specific purpose, what should it be designed for? Regardless of your ultimate goal, your business needs to be designed with revenue as the goal.
The Revenue Throughput model assesses your efficiency in turning opportunities into revenue.
When you have reliable revenue growth, it opens up a world of opportunities for whatever your dream is for your business. What would you do with your business if you didn’t have to worry about revenue? The principle of Revenue Throughput doesn’t mean your business will never run into trouble again. It does mean though that you’ll have a more confident grasp on what needs to be improved and how to fix it when it matters most.
You reap the benefits of a systematic approach to your business: clarity, reliability, and efficiency.
Pillar 3: You Can Optimize Each Component of Your System
Within your business, you have different departments that each serve a specific function. Accounting serves a different role than marketing which is different from legal and customer service. Although they are all different, each one provides a unique strength or weakness capable of impacting your entire business.
In Revenue Throughput, we assess 8 critical components of your revenue-generating system.
Sticking with the pipe and valves metaphor, each of these valves has a specific purpose in producing - or preserving - your revenue.
On one end of your pipe, opportunities flow in. You need each valve of your business open to allow water to continue flowing, coming out the other end as revenue. At the same time, each valve can also restrict the amount of water flowing through the pipe. In your own business, each valve can restrict your ability to turn opportunities for revenue into actual revenue.
Learn About Our “Revenue Throughput System”
At Value Prop, we help business owners better understand these 8 crucial valves within their business. In our Revenue Throughput System, we help you renovate and innovate your revenue-generating system. We’ll walk with you through optimizing each component of your business in the Revenue Throughput model:
- Clarify Your Targeting
- Differentiate in Your Market
- Develop On-Purpose Marketing
- Build Successful Salespeople and Systems
- Solidify Effective Leadership
- Innovatively Leverage of Resources
- Streamline Production
- Deliver Excellent Support
Our Revenue Throughput System will help you maximize the volume and velocity with which your business produces revenue. If that sounds like something you need, let's start the conversation with a no-obligation, 15-minute Discovery Call.