Financial experts and economists spend a lot of time thinking about money. They try to figure out exactly what money is worth, how that value evolves over time, and how to get the most out of each dollar.
One principle that has emerged from this thinking is called the time value of money (TVM). TVM describes a difference in the value of the money you have now compared to the same amount you would have later. It states that the money you have on hand now is worth more than the same amount in the future because it can be “put to work” by earning interest or increasing in value from inflation.
For small-business owners that may not be overseeing portfolios worth tens of millions of dollars or controlling the finances of conglomerates, thinking about spending power and revenue through the lens of TVM may seem unnecessary. But the underpinning concept—that the value of money can evolve based on other variables, like time—may be useful for those looking to edge out hidden value from their revenue streams.
According to some small-business owners, it can be helpful to apply this insight to how you think about revenue.
“You might want to think about your revenue in less concrete terms,” suggests Christiaan Huynen, CEO of online graphic design firm DesignBro.
Like many business owners, Huynen used to look more at comparing past and current performance of revenue, “than on actually managing financial stability,” he says. After a while, Huynen began looking differently at his expense sheets, seeing if there was a way to activate more value from what was in front of him.
This refreshed thinking about revenue as more than just a line item on a spreadsheet can help small business owners unlock opportunities, guide pricing strategies and improve the LTV of your customers.
Thinking of Time as Revenue
Some have taken the concept of time as money to heart, believing that investing it wisely now is worth the payoff later.
“Small-business owners would be wise to treat time as compounding leverage that—with the right investments—can help exponentially magnify their current revenue,” says Devesh Sharma, owner of WPKube, a WordPress plugin resource. “Invest immediate returns into long-term assets, both tangible and intangible, that continue to bring in returns for your business.”
According to Sharma, “Such assets could be in the form of physical resources (such as ergonomic equipment) or software tools and marketing collateral (such as the business website) that keeps driving better working efficiency and a growing number of inbound leads, respectively, for years to come.”
The investment of time and money into important needed business purchases today could end up being worth much more in a year or two, adds Huynen. “We have no idea what the future holds, so business owners could be sitting on potential profits.”
The underpinning concept [of TVM]—that the value of money can evolve based on other variables, like time—may be useful for those looking to edge out hidden value from their revenue streams.
Considering the value of time, putting procedures and ideas in place to boost sales should be done now, not in 6 months’ time, advises Nick Whitmore, managing director of False Eyelashes, a beauty supply company. “If the recent pandemic has taught us anything, it's just how uncertain life can be. Take a step back, put your prices up to achieve bigger margins, and actually save time by doing less work to make more profit.”
Consider Changing Revenue Models
Considering TVM even further, it can pay to investigate changing revenue models and resulting income streams.
“A customer may go out of business, a supplier may fail to deliver or a civil disturbance may close your shop. All such unknowns make promises of money ‘tomorrow’ uncertain,” says LJ Suzuki, CFO of CFOshare, an outsourced finance and accounting department for small businesses.
Suzuki suggests considering a monthly recurring revenue (MRR) system of prepaid annual subscriptions. Such systems, which feature a lower amount but a longer time commitment, can help guarantee continued revenue.
“MRR with a prepaid annual option is the holy grail of revenue models,” says Suzuki. “Corporations are switching to MRR models with increasing speed, and cutting-edge small businesses have taken note and are adopting MRR models as well. Sales are more predictable, customers are more loyal, and growth is more capital-efficient—meaning you sleep better at night.”
Focus on Creating Value for Customers
In the most basic sense, your customers’ satisfaction level reflects your revenue. That makes attention to customer service even more vital than ever.
“Revenue is the reflection of your value to customers,” says Boris Petrov Dzhingarov, founder of ESBO Ltd, a branding and SEO company. “I’ve found that if I keep focusing on providing my customers value, my sales remain strong.”
Catering to existing customers as much as possible is critical to your revenue stream, according to Samir Smajic, co-founder of GetAccept, a sales platform. “Since it costs you five times more in time and money to get a new customer than keep an existing one with recurring orders, it’s important to ensure existing customers are satisfied,” says Smajic. “That means building relationships with customers by being accessible and easy to communicate with and showing you understand their pains and needs.”
Dzhingarov found success over the last year by paying attention to customer service. “We made a determined effort to talk to our customers more,” he says. “We engaged and asked what they liked or didn’t like about our service, and if there were adjacent service areas where we could help them.”
When it comes down to it, customer satisfaction is the underpinning of revenue, believes Sharma.
“Putting customer happiness above everything else increases a business’s worth in the eyes of customers,” says Sharma. “Consequently, those customers are happy to support and remain loyal to the business, because they’re able to appreciate the business’s value-first approach. Customer loyalty always leads to revenue growth in the long run.”
Read more articles on cash flow.
Photo: Getty Images
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