4 Steps to Developing a Better Revenue Model

Apr 23 2016 read
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No matter what kind of consulting business you’re running, having a revenue model in place is crucial. It’ll let you know pretty quickly if your overall business strategy is working (or not). On that note, here are four steps you can take to help you develop a solid revenue model:

 

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1. Forecast

Note that this is an ongoing process, but there are two main approaches: top-down and bottom-up forecasting. While top-down is a bit dubious, it’s still necessary because you can start with the overall market size and estimate how much you intend to capture. Then, you can figure out your potential revenue. With the bottom-up approach, you start by identifying key variables, calculate the spending necessary to achieve your revenue goals, and also identify what’s driving your revenue by tracking your projects.

2. Choose the right approach

You want to go with an approach that helps you figure out where to put your development efforts. For example, if you’re running an IT consulting business and have a team of engineers, maybe you’ll want to identify where you are in your R&D model and where you expect to be in the next phase (and when that next phase is). A tool that allows you to see how busy your team and business are will make this process that much easier.

3. Project into the foreseeable future

Figuring out when you think you’ll start turning a profit is important to help you set your strategy and decide what the next major milestones are, but projecting any further than one or two years becomes relatively empty. The key is to create an overall architecture to your approach and to continually refine it as things progress. Using a platform that gives you insight into how profitable your business is in real-time will prove especially valuable when trying to do this.

4. Identify the key variables for your company

Identify the key variables that have the greatest impact on your revenue. Then, figure out what they’re most sensitive to by isolating them. That way, you’ll be able to address them individually. It’s a good idea to put this research into a graph, map it out, or use smart technology that enables you to see see when and where revenue improves (or worsens) when data is manipulated.

If you’re having trouble figuring out how profitable your business is or how you can better optimize your team’s productivity so that you can develop a stronger revenue model, check out our project management software.

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