After talking with hundreds of revenue leaders over the last year at Growblocks, I’ve started to realize something.
Most companies don’t actually have a proper model when it comes to revenue. They like to think that they do, but they only really have a small piece of the puzzle.
Let me explain.
What every single company on the planet has is a Financial model.
A financial model looks at money in and money out. Practically, what does it take to keep the lights on and the company going?
This includes everything from overhead and staffing, to commissions and revenue.
The problem? The intelligence behind the revenue number is very small. Usually, it’s based on customer targets, and for fast-growing companies it’s not crazy to think you might get orders to double or triple revenue.
From there, the CFO basically goes backwards and says, we need so many opportunities and leads to get there.
While I think the model is incredibly important, if you’re only relying on that to drive your growth then you have a problem.
Because when it comes to revenue, the model tells you what outcomes you need to do to get there. What it’s missing though is how do you get there.
To drive revenue you need to track like hiring people, executing campaigns or rolling out a product. None of that is codified in the financial model.
That’s where the operating model comes in.
Based solely on how to make a company money, the operating model includes all things revenue. I like to think of the operating model as the roll up your sleeves and get your hands dirty version of a financial model.
It basically paints a picture of how all of these resources you're investing into your process are actually generating cash, and it’s the only model that will allow you to see how each piece works together to generate revenue.
That’s not to say financial models are useless. A great one will help any company make better decisions.
But without pairing it with an actual operating model, your revenue plans are essentially a black box. You’re just throwing money in and hoping for a good result on the other side.
Want to know how to actually create the new model? Send me an email, and I might follow up with more details in the next Revenue Letter.