In the second installment of our series on Precision’s statistical models, we are going to look at the Sources of Revenue Model. This powerful tool provides a comprehensive visualization of your business’s performance over a specified timeframe, highlighting key areas that influence revenue streams. By breaking down sales into distinct categories such as churn, churning, acquisition, and penetration, the Sources of Revenue Model enables you to diagnose problem areas and identify where to focus your efforts for maximum impact.
Understanding the Sources of Revenue Model
The Sources of Revenue Model categorizes your sales into four key segments:
- Churn: Customers who have left the business or are down significantly.
- Churning: Customers whose purchases have decreased year over year but are not completely lost.
- Acquisition: New customers who haven’t purchased before or haven’t made a purchase in over a year.
- Penetration: Existing customers who are buying more than they did in the previous year.
By visualizing these segments, the model provides a clear picture of where your revenue is coming from and where there might be opportunities for improvement.
Practical Application
Let’s illustrate the practical application of the Sources of Revenue Model with an example. Consider a distributor in the healthcare industry:

In this example, the distributor can see that capitalizing on new customers (Acquisition) and focusing efforts on existing customers (Penetration) represents a $40M sales opportunity. Additionally, efforts to eliminate or reduce Churn/Churning customers represent an additional $32M opportunity gap.
Strategic Benefits of the Sources of Revenue Model
- Diagnosing Problem Areas: By identifying the percentage of sales lost to churn and churning, businesses can prioritize retention strategies to address these segments.
- Optimizing Acquisition Efforts: Understanding the contribution of new customers to total sales allows businesses to refine their acquisition strategies and improve ROI.
- Enhancing Customer Penetration: Recognizing the growth in existing customer purchases helps businesses develop targeted campaigns to further increase penetration.
- Focused Resource Allocation: The model provides insights into where to allocate resources for the greatest impact, whether it’s on retaining customers, acquiring new ones, or increasing penetration.
Leveraging the Model for Strategic Planning
Running the Sources of Revenue Model provides a solid foundation for strategic planning. Some of the ways it can be used are:
- Identifying ‘Problem Spots’: Pinpoint areas where customer loss is high and develop strategies to mitigate this.
- Highlighting Growth Opportunities: Discover segments with high potential for growth, such as new customer acquisition or increased penetration among existing customers.
- Aligning Marketing Efforts: Tailor marketing campaigns to address specific segments, such as re-engagement campaigns for churning customers or loyalty programs for existing customers.
By leveraging the insights provided by the Sources of Revenue Model, businesses can make data-driven decisions that optimize their revenue streams to enhance overall performance.
Looking Ahead
Stay tuned for our next post in this series, where we will explore the Churn Prediction Model. This model helps predict which customers are at risk of churning, allowing you to take proactive measures to retain them.
About Precision
At Precision, our goal is to empower you with the tools and knowledge needed to make data-driven decisions that propel your business forward. Whether you’re a supplier or a distributor, our statistical models are designed to provide the clarity and confidence you need to make informed business decisions.
For more information on how Precision can help your business leverage these models, contact us today.