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How to Reduce Revenue Risk

GoCardless
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Last editedMar 20222 min read

All business ventures come with an element of risk, which means that risk mitigation must be an integral part of any entrepreneur’s plan. Revenue at risk is an area to pay particular attention to. By identifying the key drivers of revenue risk, you can reduce their impact on your business’s bottom line. Here’s a closer look at the revenue at risk definition, causes, and solutions.

What is the revenue at risk definition?

Revenue at risk refers to any potential situation that could have a negative impact on your company’s future revenue. This might include internal business decisions you make, as well as forces beyond your control like wider market conditions. It’s important to mitigate revenue risk to avoid the situation of taking in lower revenue than planned, as this can impact all your business’s financial plans and opportunities for future growth.

Revenue risk is a subcategory of the broader financial risks that businesses face. Financial risk covers any loss of profit or funds over time, ultimately leading to stakeholders losing their investment. Insufficient cash flow due to reduced revenues can even cause business failure, which is why revenue risk management is so important.

What are the drivers of revenue risk?

There are many factors that could have a negative impact on future revenue. Here are some of the prime drivers of revenue risk:

  • A loss of market share to competitors

  • The general economy being in a state of decline

  • Changes in consumer use patterns for economic or social reasons

  • A reduction in profit margins

  • Poor management and business decisions

  • Running out of raw production materials

  • Lack of market insight into consumer needs

Revenue risk management strategies

Some drivers of revenue risk are out of your hands. Runaway inflation or an economic downturn aren’t factors you can control. However, keeping pace with customer needs and wants can help you mitigate overall risk. Here are a few revenue risk mitigation strategies to improve customer satisfaction.

1. Conduct market research.

Before you launch any new product, you need to be sure that there’s space in the market for it along with customer demand. What do your customers want? What do they need? Will they spend their money on your service over time?

2. Acknowledge revenue at risk.

Rather than bury your head in the sand regarding widespread financial risks, take charge by accepting the situation and formulating a strategy. Each member of your team should understand the greater risks involved to find department-specific workarounds.

3. Expand your product offering.

Diversifying your range of products and services is one of the top revenue risk management strategies. If you put all your eggs in one basket, you run a greater risk of customers tiring of your products and moving on to something new. Continually work to evolve your brand and keep existing customers interested to see what you’ll do next.

4. Keep informed of global economic issues.

The global economy is rapidly changing, and you won’t be able to adapt to these new risks if you’re unaware of them. From pandemic-related issues to inflation and other socio-economic risks, it’s important to find new ways to adapt and grow.

5. Personalise your services.

Use technology like artificial intelligence (AI) and machine learning to track customer buying behaviour for a more personalised shopping experience. Customers need products and services specifically tailored to suit their needs. This means businesses need accurate, real-time data for better decision making.

The bottom line

Protect your business with a forward-thinking revenue risk mitigation strategy. The strategies mentioned above offer a good way to start, blending market research with innovative product development. You should also think about brand loyalty through a long-term lens. If your customers trust you, they’re less likely to swap your product for a lesser-known competitor.

Technology plays a key role in all of these strategies. With real-time data gathering and analysis, you can better mitigate risk. AI can help with big-picture issues like inflation, monitoring complicated data patterns to predict consumer demand. With data analysis, your business can adapt to these changes with an agile and flexible pricing strategy, better managing any future revenue at risk.

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