One of my favorite indicators of business success is: Growing Sustainable Revenue. The sustainable growth rate in a business is the maximum growth rate a business can achieve without having to increase its financial leverage or debt financing. Stated another way, it is the maximum growth rate that can be achieved given the company's profitability, asset utilization, dividend payout, and debt ratios.
Here are three keys to sustainable revenue growth:
Connect with your prospects & clients
Understand what they want to achieve
Deliver to beyond their expectations
While it sounds simple, a commitment of time and effort is required. Often there is resistance to changing the mindset, as a team develops new habits. As an executive improves skills to manage change, it is much more difficult with four generations now in the workplace. There is no "one size fits all" solution.
Successful change management is the result of:
Engagement – Connect with your team, employees, vendors, prospects and clients
Expectations – Make realistic commitments that you will live up to
Execution – Pay attention to the details, follow-thru, and follow-up
Companies that excel at change management are also those that successfully adapt and adjust to changing market conditions. They are the companies enjoying profitable revenue growth. Successfully manage change – you’ll capitalize on opportunities and grow sustainable revenue!
From the financial perspective:
The sustainable growth rate according to Robert C. Higgins is the maximum growth rate a company can achieve consistent with the firm`s established financial policy.
Basically, it is calculated as:
SGR = (pm*(1-d)*(1+L)) / (T-(pm*(1-d)*(1+L)))
- pm is the existing and target profit margin
- d is the target dividend payout ratio
- L is the target total debt to equity ratio
- T is the ratio of total assets to sales
In order to grow faster, a company would have to invest more equity capital, increase its financial leverage or increase the target profit margin.
How to achieve long-term growth:
Ensure there is a common understanding regarding growth and profit goals among the management team - this is a prerequisite for an aligned and coordinated strategy and implementation
Understand relevant markets (current or future promising markets)
Generate market foresight when identifying and assessing growth initiatives
Segment-specific benchmarking
In-depth assessments
Market demand projections
Clearly define and communicate the company vision and strategy
Actively develop and energize the organization
Remember that growth rates are calculations based on past performance. They can't predict the future perfectly. Your actual and sustainable growth rates will not match perfectly. You should use the rates as a tool to guide business decision making, not a metric to paralyze your decision making or stunt your business. The sustainable growth rate gains more meaning as time passes and your business becomes more reliable.
We have a new Online Revenue Generation Assessment available. (Free)
Before you begin to make a plan for sustainable revenue growth and change management, this assessment will quickly help you understand the current status of your revenue generation opportunities.
