For high-tech companies, revenue management techniques are vital to protect revenue at risk and shore up profit margins. Yet many companies rely on ineffective or outdated revenue management systems and surrender revenue in the process.
In my last article, I discussed three myths of revenue management affecting many high-tech companies. First, some companies think that their revenue management processes are effective, and that there's no leakage problem — yet this rarely is the case. Second, many companies know their revenue management process is ineffective, but they consider leakage a necessary cost of doing business — yet leakage is avoidable with the right system. Finally, many companies rely on spreadsheets to manage revenue — yet spreadsheets are error prone and ineffective.
Now it's time to dive into the final two myths of revenue management.
Myth 4: The ERP system will do it
Enterprise resource planning (ERP) system vendors say their platforms can perform revenue management functions with ease, yet this is not an accurate picture. ERP systems are incredible for many tasks, OK at some, and inept at others.
Take agreement management. Most ERP systems have a module that handles the authoring and approval of contracts and agreements. However, many of these applications can't handle complex, tiered agreements and related subcontractor flowdowns. Finally, many rely on proprietary authoring tools instead of industry-standard tools, such as Microsoft Word.
ERP systems also struggle with incentive validation. The applications can handle basic incentives and discounts, but most high-tech companies require much more than these basic incentive structures. They often craft elaborate incentives to drive specific marketing goals.
Bottom line: High-tech companies seeking to optimize channel relationships and create differentiated, higher-impact offers and incentive strategies quickly realize the limitations of their ERP platforms. This forces many companies to rely on the same old incentives, which leave money on the table and put partner relationships at risk. The alternative is to implement a custom ERP application, but these add-on systems create endless short-term and long-term issues with requirement management, application development priorities and backlog, bug fixes, platform support and migrations, data protection, and backups. The list goes on and on.
Myth 5: It's just too complicated to solve
Finally, there's the throw-in-the-towel myth about revenue management. Since revenue management cuts across finance, operations, sales, and marketing, many companies view it as a problem too large to solve. Revenue management is a cross-functional challenge, but it can be tackled successfully using the following approach.
- Visibility: Evaluate your revenue management baseline at the departmental or divisional level to establish a baseline and view of the current state of data. Then compile, categorize, tag, and store that data in a singular location. This will allow all divisions to access data, review assets, and draw analytics.
- Control: Implementing process changes and new systems and tools can help you leverage the information in the repository for prioritization, scheduling, and more advanced reporting. This is the first major step in achieving automated, data-driven revenue management.
- Insight: Process optimization and advanced tools take revenue management to the phase of achieving true insight. Companies can compile statistically valid data about the performance of their contracts and incentives, as well as transaction-level details about rebates, discounts, and chargeback claims. This insight enables companies to answer crucial business questions and begin running their businesses differently.
- Competitive advantage: A truly optimized revenue management system can be the basis for a sustainable competitive advantage by strengthening partner relationships, better anticipating customer needs, reducing internal costs, and improving overall corporate performance.
Bottom line: High-tech companies need to realize that, even though revenue management can be cross-functionally challenging, it is manageable by evaluating contract, incentive, and pricing systems at the divisional or departmental level. By gaining visibility into revenue data, compiling that data into easy access stores, and adding advanced tools, companies can gain full control over revenue management.
Most high-tech companies seek to improve supply chain operations, identify new growth markets, and increase new product success rates, but many are not even attempting to improve their approach to revenue management.
A siloed approach supported by manual and spreadsheet-based processes leaves 1-5% of total channel revenue at risk. High-tech companies that adopt an integrated revenue management solution for sales contracts, post-sales incentives, and compliance management can:
- Improve overall price realization
- Optimize channel sales performance while gaining more control and insight into trading partner relationships
- Use post-sales incentive programs as a strategic business lever
- Introduce higher-impact incentives faster than their competitors
- Reduce revenue exposure and margin erosion
The five myths of revenue management are no more. It's time for companies to accept the flaws within their systems and implement an integrated revenue management solution to reduce revenue leakage and improve the bottom line.