As entrepreneurs and business owners we know that when the a new quarter rolls around, we’d better be running!
“Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle: when the sun comes up, you’d better be running.” – Anonymous
One of my favorite quotes, and so appropriate for this time of the year. So, let’s talk about it. Is your run rate running fast enough to get you to the finish line and enable you to achieve your 2017 financial targets?
What is the “Run Rate” for Your Business, and Why is it Important?
The “run rate” is an overly simplistic way of predicting the future financial results of a company based upon current financial performance. For example, if your business brought in $1 million in revenue for the first quarter, then the run rate would be $4 million for the year, or $1 million times 4. However, for most businesses, the run rate approach is not an effective indicator for future financial performance.
Why? There are too many variables that can impact future financial performance, particularly for businesses that do not have monthly recurring revenues or fees. On this point, I encourage all of my clients to consider adding a recurring revenue component to their services portfolio.
Reasons to Add Recurring Revenue to Improve Your Run Rate
- Provides more predictable income
- Makes budgeting and forecasting easier
- Supports scalability and growth
- More efficiently manage time and expenses
- Enhances long-term client engagement
Most importantly, having predictable monthly recurring revenue allows you to spend less time and energy growing the business, versus trying to acquire enough new business to hit the same revenue number as the previous year.
You may think that the magic number for figuring a year’s worth of revenue is 12. However, for subscription-based products or monthly recurring revenue models, every new dollar of revenue that is brought in will be with you for the balance of the year, so there is a multiplier effect. This is particularly true for sales booked in the early months of the year.
OK, Back to Our Original Question: Is Your ‘Run Rate’ Running Fast Enough?
If not, what short-term actions are required to accelerate the pace of growth and enable you to reach your financial targets? At this time of the year, it is less about predicting future financial performance, and more about making it happen! I have offered one suggestion already – add a monthly services component.
Short-Term Sales Strategies to Improve Your Run Rate
- Promotional offers
- Special discounts
- Value bundles
- Cross sells or upsells
- Product upgrades
- Win-back program
- “Try It – Buy It” program
The desired outcome for any business is to sell more, to more clients and more often, and not have to play catch-up at the end of the year. Whether it is the run rate formula, or some other approach (i.e. Rule of 78), the point is that we all need the right tools in place to enable us to more accurately forecast results, and the right actionable programs so we can be ahead of the curve when the 4th quarter rolls around.
Remember: Run smarter, not harder – but keep running!
The strategies above can definitely help you employ the tactic, “run smarter, not harder.” How’s your run rate as we enter Q4? Does a particular tip above speak especially to your industry?