Customers Are at the
Core of Profitability Part 2
Revenue execution
What is required
to manage the complexities
of executing a revenue
strategy? There are four primary steps required in the revenue
execution process: pricing strategy, pricing and contract management,
compliance, and settlement. Enterprise
software solutions are emerging to address every step in this
process.
1. Pricing strategy
In this first step companies determine
all the pricing methods and promotional and incentive
programs they wish to make available to customers. Frequently
they offer different pricing methods and programs for each product
line and market segment. An effective pricing-strategy
software application should be equipped to handle the management
of multiple pricing models and promotional programs, the setting
of price floors and negotiation bands to provide the sales force
negotiating flexibility, and the dynamic segmentation of customers
and products. Traditionally the pricing strategy step is managed
centrally and owned within marketing.
2. Pricing and contract
management
In the second step, pricing and contract management, a company's
pricing strategy is applied to actual customer offers and long-term
customer contracts. This step usually occurs in sales or sales operations
where offers are created based on guidelines set by marketing. For
offers based on standard company pricing
and promotions, internal approval can be automatic or streamlined,
but for non-standard offers, internal approval is necessarily more
complicated. Because approval of one-off offers can include multiple
members of the sales, marketing, finance, and legal departments,
obtaining the necessary approvals can be a time-consuming
process. Appropriate software can facilitate and expedite the
approval process by determining what exceptions need additional
approvals and automatically forwarding them to the required approvers.
Once a customer offer is
accepted, the terms of the contract or agreement should immediately be reflected
in the company's ERP system, requiring input of the price for each product sold,
typically by a manual, error-prone process. A pricing and contract management
system should automate the input of new pricing into the ERP system, immediately
enabling correct pricing on new invoices. For customers with multiple contracts
in place, the pricing and contract management system should have the ability
to resolve pricing ambiguity and automatically quote the correct price.
3. Compliance
Perhaps the most important aspect to a revenue execution system
is the ability to record
customer commitments. Discounts and other concessions in the
selling process are often associated with customer commitments,
such as promises to purchase specific volume or dollar amounts.
The ability
to record these commitments and to track customer performance against
them is an important tool for account management, providing insight
into the effectiveness of a company's revenue strategy. Yet without
a revenue
execution system a typical company will only investigate customer
compliance to contract
terms annually at contract renewal. If companies had ready access
to compliance information they could use it to ensure customer compliance
to negotiated terms.
4. Settlement
The fourth step in the revenue execution
process involves the calculation and payment of incentives and
fees due to customers or channel partners based on purchase history.
Incentive rebates, for example, can be offered to customers who
reach a given purchase threshold, which, along with its associated
rebate, must be negotiated into the contract. The actual incentive
payment is based on orders placed against the contract once that
threshold has been reached. With a software product for settlements
(such as rebates), the incentive terms can be recorded, purchase
information can be pulled automatically from the ERP system, and
the payment calculated on a regular basis. Without such a system
administrators must manually manage
this cumbersome process.
Relying on manual
business processes in executing a revenue strategy results in revenue
leakage, increased operating expenses, decreased customer profitability,
and degraded customer
satisfaction. Companies seeking competitive advantage through
complex pricing strategies require equally complex technology. Smart
companies that explore revenue execution solutions to manage
their contracts and pricing will discover that they can increase
revenue and margins while lowering operating costs, improving existing
customer relationships, and gaining visibility into the overall
revenue impact of complicated deals.
Jamie Schein and Zack Rinat
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