An uncompromising focus on growth can take companies in the wrong direction. Take Groupon. Once lauded as the “fastest-growing company ever,” its stock price has fallen about 80% since the company went public in 2011. The key is to find quality, sustainable revenue.
Here’s what that looks like:
• It’s predictable. It’s always easier to forecast if you can be confident that 90% of last year’s customers and dollars will be back this year. The money should come from returning clients willing to spend the same amount.
• It’s profitable. A benchmark for a good margin varies by sectors, but quality revenue tends to be higher-margin. Aim for gross margins of at least 70%.
• It’s diverse. While early-stage companies may often have a couple of customers that make up a large portion of revenue, over time you want to build a diverse base. None of your top five clients should make up more than 15% of revenue.
Today’s Management Tip was adapted from “What High-Quality Revenue Looks Like” by Anthony K. Tjan.