Most CEOs, CFOs, and financial analysts will tell you that revenue is a KPI (it's really not), second only to profit (which is also not a KPI).

They're wrong, and here's why.

When revenue is rising, it can hide problems in the business. Everyone likes it when revenue increases, and the general attitude is, "Revenue is going up, keep doing what you're doing!" But serious problems and oversights in your business can result.

One problem might be that you're generating more revenue in the form of higher sales from a smaller customer base, which is often linked to lower marketing expenditures (and thus higher profitability). The business can thus be at risk by the actions of a small number of customers.

Another problem might be that you're quickly generating revenue from new customers while revenue from returning customers is falling, indicating customer churn.

Examples of both situations abound in the marketplace.

When revenue is falling, it doesn't tell you why. If revenue is dropping, it can be a major signal that something is off, but falling numbers won't automatically tell you what's not working. Are you losing new customers? Are your current customers turning off? Is there a product miss? Are there operational problems?

In addition, employees focused on a falling revenue number will think, "OK, what do I do differently?" And that revenue number doesn't tell them anything. The revenue number measures the business results as a whole—not any individual functions. 




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ABOUT THE AUTHOR
image of Mark Gonzales

Mark Gonzales is senior customer technology consultant at Elicit, a customer-science and strategy consultancy. Elicit's Fortune 500 clients include Southwest Airlines, Fossil, and Pier 1 Imports.

Linked In: Mark Gonzales