Cracking the Code on Revenue Growth

Marketing leaders are increasingly on the hook for growth, and to meet this demand, they must understand how growth happens and where it originates. This post describes the wellsprings of revenue growth that any company can tap.

Today more than ever, marketing leaders are expected to develop strategies and execute programs that will drive revenue growth. In a 2016 global survey of 535 CEOs and 847 CMOs by Accenture Strategy, 50% of the CEOs said their CMO is primarily responsible for driving disruptive growth in their organization. CMOs were ranked ahead of all other C-level executives, including the CEO, the chief strategy officer, and the chief sales officer.

But this responsibility comes with a downside. About a third of the CEOs said the CMO is the first to go when growth targets aren't met.

Since marketing leaders are clearly on the growth hotseat, it's critical for them to understand the dynamics of revenue growth - how it happens or, more accurately, where it originates. There are, in fact, several distinct sources or wellsprings of revenue growth. These structural sources of growth are not dependent on the way a company is organized or on the types of products or services it sells. Instead, they are based on the business and marketing strategies that a company uses to tap into each source.

As you might expect, this topic has been discussed in management and marketing circles for a long time. In a 1957 article for the Harvard Business Review, Igor Ansoff identified four structural sources of revenue growth and four related types of growth strategies:

1. Sales of existing products in existing markets (market penetration strategy)
2. Sales of existing products in new markets (market development strategy)
3. Sales of new products in existing markets (product development strategy)
4. Sales of new products in new markets (diversification strategy)

In a 2004 article in the Harvard Business Review, Michael Treacy and Jim Sims identified five structural sources of revenue growth:

1. Continuing sales to existing customers (base retention)
2. Sales won from the competition (market share gain)
3. New sales in an expanding market (market positioning)
4. Sales from expanding into related markets (adjacent market expansion)
5. Sales from expanding into new, unrelated lines of business (diversification)

Both of these models are insightful, and I've used both when working with clients on business and marketing strategy projects to frame our discussions about how to grow. But over the years, I've expanded on these models to create a more detailed framework of the alternative ways to generate growth. The current version of my framework is depicted in the following diagram:

This framework can be a good tool for stimulating your thinking about how to grow your business. When using the framework, however, it's important to keep a couple of things in mind. First, no single source of growth is likely to provide all of the revenue you need to reach your growth objective. And second, you'll need a distinct game plan to extract the maximum volume of revenue for each source of revenue you choose to pursue.

Producing consistent revenue growth is always a difficult challenge. The good news is that these structural sources of growth are always present. Their existence isn't dependent on the market conditions a company is facing at a particular moment in time, although the volume of revenue that a company can get from each source is greatly influenced by the market and competitive environment. The job of business and marketing leaders is to combine these sources of growth to fit their unique situation.

Illustration courtesy of Paul Lancaster via Flickr CC.