What is Untapped Revenue Potential?
Untapped Revenue Potential (URP) exists in every company. It is the difference between the revenues that a company is capable of generating, were it to take full advantage of the opportunities available, and what it is actually generating.
This delta is inversely proportional to a company’s rate of growth. The faster a company is growing year to year, the smaller the delta, and vice versa. In other words, companies growing under 20% year to year are far more likely to have significant Untapped Revenue Potential.
Amazon’s S3 cloud storage business (where customers rent online storage space) provides an excellent example of how a more vigilant company sees URP and acts to unleash it. When Jeff Bezos launched Amazon.com as an online bookseller in 1995 with the vision of some day building it into the largest online retail store, he could not have anticipated the Cloud Storage business. So, why get into that business and compete against well-established data centers?
Well, because it made sense. As a natural outcome of its relentless pursuit of becoming the largest online retailer, Amazon developed the necessary expertise and infrastructure to build and run one of the largest data centers in the world. It seemed logical for Amazon to simply build excess capacity and sell the excess to customers that needed the service. In doing so, Amazon not only increased its overall revenue, but it now has double the reason for constantly improving and upgrading its data centers. The need to be competitive on the cloud storage business end enables it to have the fastest, most secure, and most reliable online store, increasing the distance between itself and its online store competitors.
This is the most important definition of a true Untapped Revenue Potential (URP). Unleashing a true URP not only will bring incremental revenue from that new source, but it will also increase revenues you earn from the rest of your business.
Why Untapped Revenue Potential (URP) Exists
Imagine if you had a ten-room house, but you were using only 4 or 5 of these rooms. It could be because you didn’t even know you had the extra rooms. More likely it would be because you didn’t have the resources necessary to make the rest of the rooms fully livable.
And so it appears to be the case with URP. URP exists for a variety of reasons—partly because it gets created without anyone really knowing it, and partly because companies do not pursue what they already know exists.
One important source of URP is the huge amount of features and capabilities that get into very mature products and services as a natural outcome of being in business for several years. As a company grows and begins to handle a variety of types and sizes of customers, it starts building “hidden” products and services for which it never thinks of charging money. The more a company works to accommodate and satisfy an increasing size and variety of customers, the more it creates new sources of revenues that were not available to it before.
Another source of URP is less hidden. Companies actually have products for which they charge money, but they don’t have a systematic program of making sure that their customers are aware of them and buy them. Why? Because the companies typically don’t know which customer has which product and therefore, can’t do targeted marketing and sales.
In our experience, both these reasons tend to coexist, increasing the size of URP. Sometimes our clients indeed were aware that certain sources of revenues were available to them, but they lacked the skills and resources necessary to develop them into moneymakers. And there were still other sources of potential revenues that our clients didn’t even know existed.
Ten Examples of Untapped Revenue Potential (URP)
If you don’t think your company has URP, take a look at the examples below. Any company that:
- Continues to add features into its products and services, as new and bigger customers ask for them, and doesn’t do anything to break the product into several versions, charging more for those that have more capabilities has URP.
- Makes complex products and does not have a Maintenance Service Program where its customers purchase assurance that their expensive equipment will be routinely maintained so as to eliminate the risk of costly downtime has URP.
- Has customers that are sourcing what it sells from multiple vendors and doesn’t know how much that is, and hasn’t done much to win this additional business has URP.
- Does not know the delta between the number of licenses it has sold into an account and the number of potential seats available in that account has URP.
- Discounts deeply to win business over cheaper alternatives without explaining to its customers why they are actually saving money by paying its higher prices has URP.
- Sells several products and doesn’t know how many of its products are with which customer has URP
- Has lower closing ratios and/or longer selling cycles than its competitors has URP
- Does not receive sales leads from its customer support organization has URP
- Has not built at least 25% of its customers into raving fans that will bring it new customers on their own has URP
- Has NOT integrated its accounting/billing system with its marketing systems such that marketing information automatically go out to existing customers based on what they have purchased, when, and how much has URP.
There are many more examples of URP. The question is not “Does URP exist in our company?” Rather it is, “How much URP do we have at our company?”
Identifying Untapped Revenue Potential
The Four Quadrants of High Growth is a the most effective and systematic approach to identifying the URP available to a company by breaking up the total addressable market available to a company into four quadrants. Quadrants 1 and 2 are of existing customers while Quadrants 3 and 4 are of non-customers.
The model helps companies identify the sources of information that reveal the URP in each Quadrant. Once you know the URP in each Quadrant, you can add them up to arrive at the total URP, which then enables you to define and build a Predictable Revenue Model™ for your company.
If a given customer purchases say 100 units of a product that you sell, but they buy only 47 units from you, then they are getting the rest (53 units) from other vendors. There is URP of 53 units from this customer. If you then determined similarly for all your customers, then you can come up with the total URP in Quadrant 1 for just that product. The next question how much of this URP can you tap into in the current fiscal year?
There is another form of URP in Quadrant 1, which is perhaps even more difficult to determine than the above example. Let’s say you sell 47 units to the company and that is all the company is buying—in other words, it has given you all of its business. However, although it has not given its business to anyone else, it still has need for 100 units, since there are other needs in the company that your product could have addressed—a need is latent and unexplored. It is up to you to identify this new need and bring this latent need to the front so that your customer is aware that purchasing more units from you can address this previously unmet need.
If you sell more than one product, then your Quadrant 2 URP falls into one of the following categories:
- Add-ons: These are additional services or components that customers typically need when they purchase another stand-alone product. A Maintenance Service Program or product warranty is a type of add-on that makes sense to sell along with an expensive or complex product
- If you have two-or more levels of a product or service—for example you have a professional and enterprise edition—then every customer who is on the lower, less expensive version, is a candidate for an upgrade. This gap is part of your URP.
- If you sell two or more standalone products that nevertheless could be designed to work together such that buying both actually returns higher value than the sum of the cost of each, and you haven’t either done that or are not selling the package, then you have URP left on the table.
Unleashing Quadrant 2 URP requires looking into the design of your products and services such that you can easily add and sell them as packages, as well as making it easy for your customers to upgrade to a higher level of product or service. The more automated these are the faster and easier you can unleash Quadrant 2 URP.
Quadrant 3 is what, typically, companies think of when they think of growing revenue—getting new customers. However, this is far more expensive way of generating more revenue when compared to Quadrants 1 and 2, partly because these are non-customers who see you as high risk since they have never done business with you yet, and partly because they already have some way of addressing the need that you want to take care of for them. For them, the devil they know is better than the devil they don’t know.
However, broadening the customer base is still critical to growth since that is the enabler for Quadrant 1 and 2 sales in future. There is a more effective way to go after non-customers in your current market space. Our Four Funnels Framework is an excellent methodology for leading customers from a very low state of buyer readiness in Funnel 1 to a much higher state of readiness to buy in Funnel Four.
The Funnel Math is a precise tool for calculating what you need to do to tap into Quadrant 3 URP. In fact it is the only reliable way you can see the level of investment needed to achieve your desired revenue growth in Quadrant 3 and budget for it appropriately.
Working in Quadrant 4 is like space exploration—expensive and risky, but with a lot of upside if done correctly—or think of a home run. It is basically an attempt to answer the question, “What other market segment(s) is/are there that can use our products and services, where our success stories in our current segment are still relevant enough to convince those customers we can help them, and we can do so with moderate amount of customization to our products and services?”
This requires a systematic search of another market sector for you to develop cost effectively—a sector that has a compelling need for a solution that you can bring to market quickly, where competition is not too entrenched, where the customers can afford your solution, and are accessible to your marketing and sales efforts.
Unleashing Untapped revenue Potential (URP)
So, how do you unleash your company’s Untapped Revenue Potential?
There are five key steps to unleashing URP:
- Discover all possible sources of URP by systematically working through each of the Four Quadrants—basically doing what we call a Corporate GAP Audit
- Determine the investment required (proforma P&L) to tap into each potential source of revenue
- Prioritize according to the amount of URP and cost/risk of unleashing each URP source
- Define the project plans for the top candidates
- Implement the necessary projects to unleash URP
None of these five steps is particularly difficult to do. So why do so many companies leave so much URP? It turns out that the companies that have significant URP never even get past step #1, for a variety of reasons. It seems that that the hardest part for most companies is actually finishing the Discovery phase–perhaps because they don’t have the time or expertise to do that in-house.
This is where outside expertise and resources can make a big difference in getting an initiative off the ground quickly and cost-effectively.
How SOMAmetrics can Help
SOMAmetrics helps companies to identify and take full advantage of their untapped revenue potential so that they can consistently grow 20% or more each year.
SOMAmetrics has developed proven methodologies and best practices for unleashing URP, honed while working at and with over 100 companies with a variety of sizes, maturity, complexity, and belonging to a wide range of industry segments.
Unlike other consulting firms that simply diagnose and prescribe a solution plan, SOMAmetrics goes much further to provide the necessary implementation expertise, project management skills, and resources our clients need to unleash their full revenue potential.
Contact us today to discover and unleash your Untapped Revenue Potential for sustained high growth.