The idea behind first principles thinking is to break down something into its most basic elements to get at a core truth of what is known. In essence, it’s a process where you deconstruct something, and then build it up again just the way you want it. It removes assumptions and determines what can be proven with certainty.
In business, there are only 2 ways to grow revenue: 1) more customers, and 2) higher spend per customer. Whether you have a lemonade stand or are IBM, that’s it.
We can break that down one more level to get to the only 4 pathways to revenue growth, all of which are driven by customer behaviors: 1. Customer growth, 2. Customer retention, 3. Purchase frequency, and 4. Purchase size.
Therefore, the first principles of marketing, and thus revenue growth, are understanding how your business is performing on the 4 pathways to growth. Make sure that you have metrics to track the outcomes of these pathways because they are the only building blocks of growth. Too often businesses only review revenue by product or service. However, without understanding the customer behaviors that are driving the sales, it’s impossible to know what the customer behavior opportunities are to improve the trend. And all of marketing is based on one simple idea: changing behaviors by changing beliefs.
So start building your marketing plan with these 4 growth pathways and ensure that all your activities are designed to improve the outcomes of one or more of these. Review your results for the 4 growth pathways monthly and make sure your actions are moving the numbers. If not, it’s time for different actions.
If your company does not report the results for the 4 revenue building blocks, then it’s time to start. Don’t be intimidated. It’s very do-able even if you have to use data to estimate some of the metrics.
