Our cash generation is directly related to our product or service life cycle. These are some quick tips for understanding and influencing revenue generation and maintaining a healthy cash inflow.
The normal product or service life cycle is expressed in the bottom graph. There is the lag phase– 1st month till 2nd month when inflow is struggling and the market is still being penetrated. In most cases our customer base is limited to new comers or trial customer. The repeat purchasers and converts are represented in the growth phase 2nd month till 7th month where the purchases and revenue are growing geometrically. Between the 7th and 10th month the sales peak and inflow stagnates. Lastly is the phase of decline where less purchases and revenue are recorded, these declines till the point where cost of business outstrips the inflow and leads to the death of a business.
In the course of the product or service life cycle, the curve may not be smooth, there may be up and downs or peaks and troughs as they are known, these signify seasons, stock outs, periods when other substitutes come into the market, when the fad dies if it is a fashion item, when new models emerge or for an upward swing when your competitors have a stock out, you have a price advantage, you have a monopoly on a new product and other peculiarities in your sector or industry. These changes should be investigated and identified, the peak period conditions should be repeated as often as possible if there is a way to naturally induce or influence such and the trough periods should be guarded against and avoided at all costs.
A product or service life cycle can be drawn, plot a graph of your sales revenue over time. The considerations to take into cognizance are how long you have been in the business, if you deal in a single product or service, and if to group all your multiple goods and services into one category.
There are four likely outcomes of which one is that the lag phase never moves beyond the lag phase where the trials come once and repeat customers are not forth coming or every month the entrepreneur has to convert new buyers monthly. This is a sign that there is no sustainable demand for the goods or service offered or that the product is not matched to the clients being offered, or the price is not right or the clients need for the product or service is substitutable.
If you notice a quick decline after your peak phase there is need for immediate action.
To achieve and extend the plateau, here are a few suggestions:
- Redesign your offer
- Repackage your offer
- Try to improve the quantity sold
- Extend your customer base
However, the ideal is to keep the growth phase extended indefinitely.
This can be achieved in two ways:
- By increasing the depth
- The breadth of your customer base and by manipulating the sales revenue model.
In conclusion it is important to make sure that your sales revenue covers all your business costs and a profit margin that is robust. We are in business to make money as well as grow.