Hot Takes

How should I think about revenue modeling for my company?


I found myself in a heated discussion earlier this week. The big contentious issue: which direction should the company go?

Now, it’s hard to make informed strategic decisions if you don’t really have a decision framework around it.

Plus: at a strategic level, it’s always about too many opportunities available and never enough resources to go around.

In the end, it always comes down to prioritization (as in: “of the dozens of things we *could* do, what are the Top3 we are focusing on this quarter?”) and related trade-offs (as in: “by going in this direction we’re sacrificing this number of other opportunities we’re not chasing, are we comfortable with that?”). 

It’s never easy, particularly because different functions/departments leaders will have different lenses. Product will care more about retention and engagement, Sales will care more about closed-won and pipeline coverage, Success will care about renewals and expansion, Marketing will care more about visitors and subscribers, Finance will care about bookings and profitability… and so on.

That’s all good, but at the end of the day, the goal is to have revenue grow as much as possible per unit of time (month, quarter, year). 

That’s why Growth-focused and Revenue-focused operators (and leaders) have become increasingly prominent within organizations.

The best way to align the different functions is to tie OKRs back to revenue modeling. The best models I’ve seen? They have these elements:

  1. Where is the revenue coming from;
  2. What’s the current and expected growth of that revenue;
  3. What’s the cost of generating that revenue;
  4. How does that jive with the strategic priorities of the company;
  5. What levers are available to act on.

A framework like this one can quickly become a north star for the entire organization to align on. Try it; you won’t be disappointed.