19 Jan Revenue Growth Management – PITA
Population, Incidence, Transaction, Amount
The levers that drive your volume and revenue
PITA is one of the most important elements of revenue growth management strategy.
The beauty of PITA is in its simplicity. It stands for Population, Incidence, Transaction, and Amount. And it tells you how, by leveraging one of the PITA elements, you can increase your sales, and in turn, revenue and profits.
The population is the number of both existing and potential consumers or customers in a territory. Let’s say we are interested in teens in Charlotte, NC as our target market. Bureau of Statistics says that there are 800,000people in Charlotte, and 13% are teens or 104,000. in our example, this number will be fixed, and we will not be able to modify it, but in some cases, you will be able to actually drive the population as well.
I stands for Incidence (to avoid confusion, other terms used for incidence are Recruitment and Conversion). Let’s say that 10% of the teens visit your website (and by that, we mean within past four weeks).
T(ransaction) is the frequency of consumption – let’s say that those 10,400 of teens have actually purchased something from our website.
And finally, A(mount) is the quantity consumed – so let’s say that in average teens have spent $12 per week on products sold on our website.
So our base scenario, let’s say that we have a situation whereby;
I.e. out of 104 thousand teens we get 10% buy from our website, giving us the volume of $125,000.
Let’s assume that by utilizing innovative recruitment (conversion) strategies, we manage to get additional 5% of Charlotte’s teen population to buy from our website. Keeping everything else the same, our revenue will grow by almost 50%.
Similarly, if we manage to increase frequency of consumption from an average of once per week to two times per week, this will double our volume.
Finally, getting our customers to spend 30% more will also drive our volume by identical percentage.
PITA tool can be used in different industries, and principles will be the same. Same principle applies for a brick and mortar store, or a restaurant.
In our example, next step in understanding PITA will to use market segmentation, and look at PITA per different socio-economic or income groups, urban vs rural, different regions, age groups and so on.