UNLOCK YOUR THROUGHPUT
What is Revenue Throughput?
The concept of Revenue Throughput was developed over 15 years ago by investor Doug Crisman and Value Prop CEO, Jose Palomino. As a result of their collaboration, Revenue Throughput has provided hundreds of business owners with a holistic view of how revenue “flows” through their businesses.
through·put | \ ˈthrü-ˌpu̇t \
- the amount of something (such as material, data, etc.) that passes through a machine or system.
A little history
Years ago, before I launched Value Prop, I worked with my good friend and mentor, Doug Crisman. We were working with several small businesses - mostly to help them grow their revenues and profits. Again and again, we came to the same point in our efforts to grow these businesses: sales and marketing were a critical process for growth (obvious) - but many other processes were having an impact on their revenue production as well.
More to the point, since the companies we were working with were smaller, we could see all the moving parts (and those responsible) in a few meetings. We learned something that may seem obvious in retrospect but has proven to be incredibly relevant to almost any size business. Namely, it was all a “system” - one with the primary objective of producing revenues and profits. A few years later, I was working on my MBA at Villanova University and saw these same principles in the five semesters of Systems Thinking that were at the core of our curriculum. In the years since, this view has driven everything I’ve done with Value Prop and our clients.
In other words, each and every business is really a system (a “machine”) designed to produce revenue for its owners. I don’t mean that a business cannot have a high purpose (i.e., “change the environment” or “provide the best healthcare” or “bring communications innovation to everyone on the earth”), but rather, that as a functioning system, it either facilitates or hinders the marketing, sale and support of whatever it is that it does. And without revenues, the “big idea” will fail.
But, where’s the action?
In thinking about a typical company’s functional areas, we started asking ourselves and our clients, “how does this (e.g., finance, production, customer service, etc.) affect your revenue?” At first, clients struggled a bit with the question. It seemed obvious that good customer service would help with repeat business. But less clear how culture played a role.
But we asked tougher questions. For example, “How is your customer service process documented?” We knew that many companies - big and small - have many processes that are held together by good intentions and culture. However, the absence of explicitly documented processes leads to uneven application of the best of intentions.
Ok. So, this is all about having lots of lists and SOPs, right?
Well, actually, no. We saw some companies try to document everything - without thinking about the overall system goal (making revenue happen). So, certain processes could be optimized (closing out books at the end of each month), without asking “how does this affect our customers and their desire to buy from us?”
Some processes had little or no relevance to revenue. Others had a subtle but real impact on revenue. And this varied from company to company. For example, an owner’s timetable for exiting the business directly affects the likelihood of that owner making major capital investments - perhaps for that machine that would make the business more price competitive.
In the face of this, we realized that we needed a way to bring together all the disparate parts of the business in a way that would empower the owner to prioritize their resources, time and people to drive growth.
A tool was born
So, back to Doug and me. With the realization that the businesses we were working with were in fact, “revenue machines”, we set about the work of translating this realization into a diagnostic and action planning tool.
A machine needs a schematic. A machine needs checklists to see how it’s doing. And a machine can be optimized.
This led to a construct we dubbed the Revenue Throughput Analyzer or “RTA” for short.
RTA is a unique tool that allows owners and their leadership teams to diagnose a company’s strengths and weaknesses as it relates to the generation of its revenue streams. RTA exposes eight key areas of business: ideal (target) market, differentiation, strategic coherence, leadership and risk management, marketing strategy and execution, development/production, sales process and execution, and fulfillment and customer satisfaction.
For each of these eight areas, RTA further breaks down six essential elements that can be judged, monitored, and improved.
For example, with RTA, you can score your Ideal Target Market. That is, the focus on identifying your target market, experience with your ideal customer, identifying a shortlist of ideal customers, your sales volume, and the direct competitive pressure that you are experiencing. The goal is to quickly identify whether you’re dealing with a net contributor or a constraint to your throughput.
This thought became central to how we used the RTA to unlock revenue throughput within our client’s businesses. “Is this a contributor or a constraint to your revenue production?”
Pipes and Flow
You get the picture. But think along the lines we started thinking. Throughput is flow. But, flow through what? That’s when we decided on this metaphor: a pipe with 8 valves.
First, we imagined a valve.
Then we thought of many valves on a pipe, each controlled by a process that, collectively, make up the revenue system that is your business.
We realized that bottlenecks on a pipe with 8 valves could constrain revenue “earlier in the flow” of the overall process. That is, if you haven’t sharply targeted your ideal customer audience (the type of customer that is best for you and Valve One), then anything you invest in marketing (Valve Three) could literally be a waste of time and money.
This got us thinking about developing a better picture. Which led to this schematic picture - much better at explaining the throughput concept.
The net-net: after analyzing each segment of your business, you would have a greater understanding of where you need to focus and develop a specific action plan tailored to address the bottleneck or “revenue constraint.”
And while resolving a constraint in one “valve” means an increase in throughput, it would just as likely reveal another valve became the new bottleneck.
Jose and Value Prop showed us how to refocus and win in a super competitive manufacturing market - winning new business and adapting in creative ways.
CEO, US Axle, Inc.
Is this “real” or “heady” stuff?
It’s very real and very practical. Over the last 15 years, many owners have received actionable insights to help them refine their business strategy/plan.
Think about it - in one tool - one approach, a company’s owner and leadership team assess and better understand 48 dimensions within 8 key areas. These include:
- Market Understanding – Do you know the market you’re going after – customers, competitors, trends, etc.?
- Marketing Strategy – How are you going to reach that market
- Pricing Strategy – Do you have a pricing strategy and how is that strategy affecting your business on several levels?
- Messaging/Branding – Do you have clear messaging and branding and is it helping or hurting your business?
- Marketing Communications – How are you getting the word out?
- Lead /Demand Generation – What are you doing to create interest? Are you measuring it? Is your measurement accurate?
In addition, they will discover hidden inefficiencies, bottlenecks, and even missed cost savings and much more. RTA – the single best way for a leadership team to discuss, diagnose, and enhance their company’s revenue throughput.
Let's talk about how the Revenue Throughput model can help your business grow.