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Revenue - Improvement
Revenue - Improvement
Matt Fox avatar
Written by Matt Fox
Updated over a week ago

When improving revenue it's good to familiarise yourself with your clients numbers and know their current financial position. In the below example I use a client that is in a loss making position.

Potential Profit & Cash Formula: Additional revenue (the change) x current operating profit percentage

Every £1 increase here (yearly target figure £466,667) is multiplied by the current period operating profit (-4.73%).

I've put a side by side view of the future numbers (left screen) and current numbers (right screen) to show where the figures come from. Both of these dates are set to June 2023 in this example (red button).

The yearly target before improvement are what the current number figures are. In this revenue example, £466,667 of actual revenue. When I improve the yearly target by £100,000 to £566,667, the profit improvement shows -£4,730 which is what the current EBITDA is declining at. (-4.73 x £100,000 = -£4,730). This business example is operating a loss currently. With a profitable, growing business, this figure would be positive and green, not red.

Every £1 increase in revenue (future numbers yearly target figure £466,667) is multiplied by the current operating profit (-4.73%). These three areas, revenue, gross profit and EBITDA all correlate when making improvements to each other.

So if we increase £466,667 by £100,000 we get £566,667 and that is a -£4,730 profit improvement (reduction) because the company is growing at a loss of -4.7% EBITDA.

You can’t just focus on revenue (top line), you need to focus on profitability as well. So it’s a good indicator for your clients. Don’t just increase revenue. We can’t just add more to the top and expect it to add to the bottom. Let's pull some of the other levers to show this example.

A 1% improvement to the gross profit yearly target of 45.81% to 46.81% is £4,667 which is 1% of current revenue (£466,667). If I keep my revenue improvement as it was, £100,000 and improve my gross profit by 1% too, then my potential improvement for gross profit jumps from £4,667 to £5,667 which is 1% of the £100,000 increase in revenue (£1,000). This is then added to the base line gross profit improvement of £4,667 before improving the revenue.

What I've done here is show what happens if I improve the yearly target by 1% in operating profit whilst keeping the revenue improvement as it was. As you can see they work together when making changes. So a change to revenue, whilst a change to the gross profit figure, changes the improvement of gross profit again.

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