KJ

Value vs. Revenue: A Challenge Everyone Should Think About

TLDR;

  • Understand the importance of revenue as part of the value one is providing
  • Validate the existence of revenue as part of the business processes (hiring, promotions, priorities, etc.)
  • Are we able measure revenue for every job?

One of the best and worst things about being a consultant is that one knows the revenue they are bringing in: it's your bill rate multiplied the number of hours worked. You know your worth to the consulting firm.

Now lets flip that a bit, as the true measurement of a great consultant is how much value you are providing to a client, with the goal of it being above your bill rate. Can you measure that? Is the client's revenue increasing by more than your rate? Or are they saving that much more to increase their profit margin?

In the Footsteps of Giants

One of the greatest realizations to me around the challenge of value came from a director at a multi-billion dollar retail organization at the time.

Right now, the website is worth 3.5 billion a year. If we let all of you go right now, the website is still worth 3.5 billion a year.

Before I heard that, I don't think I really understood the concept that we are in the footsteps of giants. Once an application is developed and bringing in the revenue, every change from there is so miniscule. The first project I was on brought an estimate of 3 million more per year, and whopping sub .1% increase and still only in theory, along with any other changes and marketing promotions made at the time.

What is the value of...

There is a concept of "technical debt" within the world of software. It is the tickets we put on the board that do not provide direct revenue or savings, they are "clean up." They are items that the team deems valuable to helping them work faster, cleaner code, speed up the build, more validation tests, etc. However, there are two assumptions made within these tickets:

  • This will speed up the cost of implementations
  • The business values the individual's time

Similarly, we have an entire role commonly known as "middle management". These individuals are not doing the work, nor are they setting the vision, but managing the people doing the work. How does one measure their value? Timesheets approved? conflicts resolved? These roles are often cut first as teams mature and less management is needed. They are in a similar boat as tech debt, invisible value, no revenue. This then leads to over bloating on managers and layoffs to boot. I have watched a mass layoff of 100 middle managers, and there were ample managers already in house to take their place.

A culture of revenue, not profit

To be clear, profit must exist for a business to exist, there is no exception to that. The amount of income must be greater than expenses.

I would like to create a challenge into developing practices that focus on the revenue up front.

  • If we don't see revenue growth as part of the hire, why are we hiring?
  • Does the role we are defining have a clear-cut value which promotes revenue, and therefore the job is sustainable?
  • Is the work we are focused on as software developers also providing more revenue?
  • Can you measure that value or is it just a prediction, and can we create transparency around that?

Is what I just put above realistically possible at scale? I honestly have no idea. Within the world of a solid consulting firm it is an expectation for 99% of the jobs which are billing or sales, both a direct means of revenue.

As AI integrations blossom through businesses, I firmly believe it's the non-revenue jobs which are going to get cut, as those also correlate more tasks which can be automated. Providing value is a nice to have, providing revenue sustains the business.