Organic revenue refers to the money generated by a business through its core operations, without the need for outside investments, acquisitions, or financial engineering. It’s an important metric to consider when evaluating the financial health and prospects of any business. Organic revenue can come from a variety of sources, including sales, services, and fees. While organic revenue can be an excellent indicator of the strength of a company, it is not the only metric that should be evaluated when assessing the overall health of a business. In this blog post, we will explore what organic revenue is, how it is calculated, and what insights it can provide into a company’s financial performance. We will also look at the potential drawbacks of relying solely on organic revenue as a measure of financial success. By the end of this blog post, you should have a better understanding of what organic revenue is and how it is used by businesses and investors.
What is Organic Sales?
Advantages of organic revenue
Here are the main advantages of organic revenue:
Resource flexibility
Organic revenue doesn’t require a company to have a lot of cash on hand, unlike acquisitions or mergers. Companies can increase organic revenue by utilizing existing personnel and financial resources through innovation and creativity. Companies accomplish this by repurposing market research from an existing product or service to inform new product or service offerings or product and service adjustments, reallocating funds to implement a new strategy in place of money spent on implementing previous strategies, allocating personnel resources to projects that are most likely to generate revenue, and more.
Predictability
Organic revenue is typically stable in contrast to inorganic growth opportunities, which come with inherent risks like entering an uncharted product category and potential operational difficulties when merging two companies. Companies use research to inform their product development, marketing, and sales strategies, which makes them largely predictable. Companies can improve their internal processes and product offerings thanks to this predictability in order to stay relevant and expand their business.
Organizational focus
The ability to concentrate on current operations and product offerings without having to divide attention with a potential or recently acquired company is a benefit of organic revenue. Company executives can pay close attention to important details, thoughtfully manage staff and systems, and quickly adapt to shifting market trends with this more focused approach. Leaders can also come up with new product ideas and long-term company goals thanks to this sharper focus. Additionally, by sticking to the company’s mission and core product and service offerings, you avoid confusing customers.
What is organic revenue?
Organic revenue is the income a business generates from its current operations and resources. Sales of its current products and services, the growth of its clientele, and the expansion of its sales into new geographical areas all fall under this category. It excludes revenue from acquisitions, mergers, and borrowing from other businesses, also known as inorganic or external revenue. The knowledge, abilities, connections, and expertise of employees are some of the internal resources a business uses to increase revenue organically in addition to the goods or services sold.
Organic sales techniques
Any business operation must include sales, which are especially crucial to a company’s organic revenue. The sales methods employed help a company’s revenue and longevity be maximized. You can use these four organic sales strategies regardless of the nature of your particular industry:
1. Identify your target market
Your target market is the group of people you expect to buy your products. Companies conduct internal research and hire outside consultants to study the market and determine a target customer base. The target market includes general demographics like age, gender, and location as well as more specialized demographics like parents, people in a particular profession, or people with particular needs. For example, elderly people, people with serious physical needs, and those who provide care for them are the target market for home hospital beds.
2. Differentiate your product
A comparison of your product to competing goods is one step in the research process. Differentiating your product from competitors is a successful organic sales strategy because it increases the likelihood that your target market will choose your product over a competing one. Offering specialized features or lowering your price are two ways to achieve this. Companies will occasionally decide to target a niche market, in which case they will provide a highly specialized product that appeals to a very narrow clientele.
3. Develop and implement a comprehensive marketing strategy
A helpful sales technique is to create and implement a thorough marketing strategy after defining the target market and finalizing the product offerings. This includes deciding how often and in what ways you’ll communicate with your target market in order to capture their attention. Businesses employ both conventional and digital marketing strategies that appeal to the target market. For instance, a company selling running shoes might place advertisements on the websites of gyms, marathon associations, or neighborhood running groups.
4. Maintain quality and consistency of your product offering
For a business to succeed with organic revenue, it must consistently offer high-quality products. Customers know they can trust the product to meet their needs thanks to the credibility you build for the product, making this a successful sales technique. Customers are therefore more likely to purchase the product, increasing organic revenue. Additionally, mentioning your company’s customer retention and success in your marketing campaign boosts organic sales revenue.
Organic revenue example
If an ice cream shop increased its revenue by $300,000 by opening a second location of the exact same business, that would be an example of organic revenue. In particular, the sale of ice cream, cakes, and beverages generated $500,000 in revenue for the first year. They opened a second location selling the same menu of items in the second year. The two locations’ combined annual revenue for year two was $800,000, showing a $300,000 increase in organic revenue.
Tips for increasing organic revenue
Given that the majority of businesses are profit-driven, it’s common for business leaders to think about strategies for boosting revenue. There are particular tactics you can use to increase organic revenue as opposed to inorganic revenue. Here are four tips for increasing organic revenue:
1. Diversify your marketing strategy
By incorporating new digital or paper-based tools into your marketing plan, you can expand your audience and more successfully attract the attention of your current target market. By doing this, you’re probably going to increase sales, which will raise your organic revenue.
Changing the times and platforms where you advertise are two examples of this in the digital sphere, as are hiring celebrities to serve as brand ambassadors and post favorable reviews and descriptions of your products. Examples using paper include rebranding or changing the color of your mailings to attract more attention, or distributing materials in new areas.
2. Offer more competitive pricing
Although offering more competitive pricing that results in a higher volume of sales can increase organic revenue overall, lowering prices of goods and services reduces the revenue of each individual sale. Companies achieve this by reducing the cost of individual products per unit, bundling products to save money overall, and providing rewards programs that reward customers with free or reduced-price goods after a predetermined number of full-price purchases. Close monitoring of sales and corresponding revenue before and after the pricing change is essential to the success of this strategy in order to assess its impact and make necessary adjustments.
3. Add a new differentiator to your product offerings
Businesses can boost their organic revenue by giving their products new features or services that set them apart from rivals. Examples include making a publication that was previously only available in print available online or extending service hours to accommodate clients with varying work schedules or lifestyle requirements. The differentiator you choose can be influenced by market research on competitor differences and market gaps.
4. Offer subscription services
Offering subscription services for their goods or services, such as a magazine subscription, a recurring delivery of predetermined goods, or a recurring access fee for an online program or service, enables businesses to increase organic revenue. For instance, educational businesses provide subscription services to academic websites that provide students with enrichment activities.
Companies create a continuous organic revenue stream without needing their customers to make new purchases by automating these purchases upon sign-up. Companies can use this strategy in place of or in addition to their current product or service sales and marketing strategies.
FAQ
What is organic revenue growth?
The increase in a company’s internally generated sales is known as organic growth. The idea is used to distinguish between sales coming from operations that are already in existence and those that were acquired during the measurement period.
What is organic and inorganic revenue?
Inorganic growth is expansion brought about by acquiring or opening new businesses. Comparable or same-store sales are frequently used to measure organic growth, which a company sees from its operations. Acquisitions can help a company’s earnings and market share rise right away.
How is organic revenue calculated?
Growth in net new assets (or revenue), unaffected by changes in market value, is referred to as organic growth. The basic equation for organic growth is: inflows of assets and revenues minus outflows of assets and revenues.
What does organic sales mean in business?
Internal sales revenue is referred to as “organic sales” in business. Organic sales include all sources of income that the company receives directly from its ongoing business operations. The business would search for prospective acquisition targets to help boost top line growth in order to generate external sales.
