Nobody can predict the future of business in light of COVID-19, but those organizations who have digital in their DNA are likely to be the financial survivors. That’s why we’ve seen companies such as Chipotle and other large “big box” retailers continue to grow during the pandemic.
Companies need to learn from these successes and start taking actions today to accelerate their revenue in the post COVID market.
The unpredictable world we live in has forced companies to rethink how they grow. No longer does growing at all costs work. There are intense pressures to minimize costs while maximizing lifetime value. Organizations need to figure out how to deliver value to customers over their lifetime. 1 For some industries, this lifetime value may shrink if they do not adapt quickly and have a plan for accelerating revenue.
The playbook for accelerating revenue
Before you can even start trying to get revenue going in the right direction, you need to evaluate your business by asking these two important questions:
- What is your current financial health?
- How should you innovate to ensure customer lifetime value?
Let’s discuss financial health first.
By taking cues from private equity (PE) firms and what factors they look for in company valuations, you can follow these key leading practices to position your company for financial stability, resiliency and growth:
- Get a clear picture of your liquidity to optimize cash levels to weather this crisis, deciding whether you need to engage a third-party or captive finance.
- Use multiple strategies to free up cash for growth initiatives. This requires a new mindset that aligns priorities across the organization and empowers people to proactively looks for ways to preserve cash for select growth initiatives.
- Apply the Rule of 40 to evaluate your company’s financial health, which looks at growth and profit margin. For example, if your revenue growth is 15% and your profit margin is 20%, your rule of number is 35% (15 + 20), which is above the target.2 In the current market, neither number should be negative.
- Find the right operational metrics to measure the efficiency of the PE model to drive efficient revenue.
- Benchmark efficiency against industry peers, looking at similar companies whether you are in the growth, maintain or protect trajectory.
By understanding where you stand from a financial perspective and reallocating cash for growth, you can more easily adjust your business model to become more innovative and resilient in delivering better value over the long term.
This sound financial foundation coupled with an agile digital strategy has proven to be an advantage in these volatile times.
Let’s look at some examples.
<<< Start >>>
Caption: What are companies doing right? Focus on customer-driven experiences, building digital models for financial flexibility and operational efficiency to serve the customer.
<<< End >>>
A digital burrito?
Chipotle has quadrupled its digital business in only three years, achieving more than $1 billion in sales in 2019. They began their digital journey prior to COVID-19 through digital pick-up shelves, digitizing its make line and expanding its digital footprint to more than 98 percent of its store base.3 In the first quarter, Chipotle’s digital sales grew 81 percent to $372 million, making it the highest quarterly level for its digital sales.4
Several of the innovative “big box” retailers showed their digital-savvy by growing their April digital sales by more than 200 percent.5 While other retail chains are struggling, these “big box” retailers are excelling because of the digital transformation decisions they made three or four years ago.6 These firms not only provide an online store like many traditional retailers, but they also provide an easy way for deliveries and safe, at-the-curb pickups.
These companies began their digital transformation early on and have clearly benefited from these decisions during COVID-19.
What can companies learn from these examples?
- Customer experience is key. Each of these examples highlights the value of delivering a needed online and safe customer experience.
- Financial flexibility. These companies have strong financial balance sheets and flexibility to direct cash to growth initiatives and new digital business models.
- Speed in creating operational efficiency. There are many other companies who have digital presences, but Chipotle and these “big box” retailers demonstrated a unique ability to quickly deploy digital actionable plans to create efficient operational capabilities.
There has never been a better time to start accelerating your revenue growth strategy in this COVID-19 world. In our next blog, we will dive deeper into how you can balance growth, cost and innovation to free up cash for innovation such as new digital as-a-service business models beyond your Digital Burrito.
2 The SaaS CFO
4 RESTAURANT DIVE
5 Digital Commerce 360
6 ZD Net