December 28, 2014

The Mechanics Of Making Money And The Business Physics Of Revenue

Think about a graceful hang-glider and a massive new Boeing Dreamliner screaming overhead.

Despite how radically different the hang-glider and the jet are, they are both flying because of the clever application of the mechanics of flight.   They would both come crashing down if those mechanics were ignored.

increasing revenue

Early flight pioneers watched birds in flight and concluded that a flying machine that allowed them to “flap their wings” would be the ticket.  And ludicrous as it sounds, that made absolute sense at the time, given what people observed.

“Making Sense” Doesn’t Make It True

But the fact that it “made sense” didn’t make it the correct approach.

Of course, it wasn’t until years later (and after untold mistakes, dead-ends, injury, and death) that flight pioneers came to understand the true mechanics of flight.  And once the mechanics of flight were understood, aviation really took off (I just couldn’t resist).

The financial results your business creates are subject to certain mechanics too – just like flight.  The concept of financial results is a meta-concept.  That means it is an aggregated concept that is the natural outcome of certain underlying “laws” or mechanics.

It doesn’t matter what size of business you own, what industry you are in, or what level of experience, passion, or desire you have.  The financial results your business creates are subject to the same mechanics of making money – what I call Business Physics.

The Mechanics Of Revenue

Let’s look at revenue as an example of how to apply Business Physics to improve your financial results.

It’s obvious your business has to generate revenue if it’s going to make money for you.   But to control your financial results you need to break the meta-concept of revenue down into mechanical components.

Revenue is the result of the combination of three separate elements:

  1. How many customers you have;
  2. How often those customers buy something from you; and
  3. How much they buy from you each time

Viewing revenue this way reveals that you can increase revenue by doing any of the following:

  • Get more customers;
  • Get customers who have dealt with you before to buy from you more often;
  • Get customers to spend more each time they buy; and
  • Any combination of these three elements

Different Paths – Same Destination

Looking at your revenue from this perspective allows you to clearly see the different paths that you can take to get to your desired end result.  And then you can pick the one that is the best fit for your business, your personality, and your lifestyle.

For example, maybe you have lots of customers but they only purchase a small part of your total product or service offering.  Your best path to increased revenue may be to approach existing customers to encourage them to buy other things you could offer them.

Or maybe you have a large number of inactive customers who, for some reason, haven’t bought from you for quite a while.  Your best route to increased revenue may be to develop a strategy to encourage them to come back and become active once again.

There is an almost infinite number of ways you can combine Business Physics to create the financial results you want – in a way that is meaningful and sustainable for you.  There is no one best answer that applies to every business.

Just like there are many ways to apply the mechanics of flight – the right way ultimately depends on what you are starting with, where you are now, and what you want to accomplish.

Remember the graceful hang-glider and the massive Boeing Dreamliner both harness the same mechanics of flight.  It’s just that their designers had two different ideas about what flight should look like.

Hang Glider Photo via Shutterstock

2 Comments ▼

Steve Wilkinghoff


Steve Wilkinghoff Steve is a leading small business expert and author of the book, Found Money: Simple Strategies to Uncover the Hidden Profit and Cash Flow in Your Business. His experience with thousands of small business owners around the world has allowed him to create a proven set of tools, processes, and an online software app that helps business owners and managers drive financial, business, and performance fluency across all functionalities of their business. You can find out more at BetterTribe.

2 Reactions

  1. Bundling is a major tactic used by companies to increase the amount being purchased in a single transaction. Subscriptions are aimed at making frequent purchases more regularly (people forget or delay unless it’s automated). Great framework!

  2. Great article, Steve. And I agree with you Robert, bundles and subscriptions are some of the best ways to generate quick and sustainable revenue. Also, adding bonuses as an incentive to buy is a great way to do so as well.

    To

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