7 Best Practices for Effective Revenue Management

7 Best Practices for Effective Revenue Management

Your Incentives May Be Costing You In today s world where we have access to technology that can accomplish just about any task for us, it is almost inconceivable that any company would still manage the complexities of incentive programs manually. Here, you have employees keying in calculations, working in large and unwieldy spreadsheets, sending sensitive documents via email, copying and pasting critical information, and looking up contract terms to ensure compliance. These manual processes require extensive time, resources, and strict attention to detail the potential for error is high. Lack of a formal revenue management system is the leading contributor to the mistakes and oversights that cause major problems like margin erosion and financial reporting risks. Adopting a more formal system hinged on high-performance analytics will improve the accuracy and speed of revenue-related activities. A full revenue management engine comprises an agreement management component that supports full offer development and contract authoring, promotions, and royalty arrangements as well as a real-time pricing component that examines all pricing-related activities and reconciles them against the agreements. A formalized revenue management approach enables metric-based, scalable, and reliable system that facilitates root-cause analysis, audit preparedness, and the development of creative and high-impact incentive strategies. Plus, with a robust system architecture, companies can introduce workflow improvements, security, and integration. How do you get there? Where can you start? In this ebook, we outline and define seven best practices for revenue management, designed to address the biggest issues facing companies operating in complex distribution channels. Revenue Management Best Practices: Establish a Consensus Control Spreadsheet Use Think Lifecycle, not Linear Treat Contracts as Living Documents Integrate Contract and Revenue Management Maintain Systems of Record Use Analytics to Create Data-Driven Operations Let s take a closer look. 2

Establish a Consensus The old standby of If it s not broken, don t fix it no longer applies. Sometimes, we don t even know something is broken until it s fixed. IACCM has found that ineffective management of contracts and agreements can put 1-9% of revenue at risk and most companies don t even know it s happening. DETERMINE PARAMETERS OF THE FINAL DECISION Timelines Budget limitations Scheduling constraints Legal requirements Contractual obligations GATHER INFORMATION What information is needed to make informed decision Are there any assumptions that need to be tested Solicit input from third party vendors and implementers So, once the decision has been made that a change is needed for current revenue management processes, a series of steps should be taken. But first, in order to implement the right systems and processes for revenue management within the company, all stakeholders must be considered and in agreement. Here are five steps to establish a consensus amongst stakeholders across the organization: DETERMINE STAKEHOLDERS NEEDS FROM A REVENUE MANAGEMENT SYSTEM Which departments are impacted and how What does each party need for success Who should be involved in decision making Are channel partners or customers impacted EVALUATE OPTIONS In-depth discussions about alternatives Consider full range of options How well does each option meet all of the established needs PLAN FOR ACTION Plan implementation of final decision Establish who needs to be involved Do you need a secondary plan Establish process for formal evaluation and when to revisit 3

Control Spreadsheet Use Using spreadsheets to manage revenue activities is not a crime. But how is your company using spreadsheets? Companies that rely heavily on spreadsheets could be putting their revenues, outcomes, and brand equity at risk without the proper controls in place. Many companies are managing millions or even billions of dollars in revenue-related activities on spreadsheets. That s a lot of faith to put in a desktop-based application. In large spreadsheets, small errors in calculations can easily snowball, leading to costly errors in the form of overpayments, duplicate payments, missed payments, overlooked receivables, or noncompliance with contract terms. Over time, these mistakes will erode at the bottom line and damage channel relationships. What businesses need in place are processes, tools, and training to ensure there are sufficient, documented controls around spreadsheet use. For each spreadsheet, the following must be documented: Supported financial accounts and processes Current owners and modelers Description of calculated final amounts History of changes How spreadsheet output is used Inputs, logic, and interfaces Spreadsheet testing Critical processes must also be documented, including how to: Request changes to a spreadsheet Test a spreadsheet Obtain proper signoff when a change is functioning as intended Securely store, back-up, and when necessary recover documents 4

Think Lifecycle, Not Linear. Traditionally, revenue management has been approached as a linear process a series of (somewhat) related steps that have a very definitive start, middle, and end. Companies using such a tactical approach may think they are getting the job done when they cross off each step in the process, but they fail to get the bird s eye view. Confined to one step in the process at a time, it is impossible to see the impact of actions down the line and can be difficult to know if and when mistakes are made. And mistakes can be costly. Chronic errors in payments can result in leaked revenue, profit margin erosion, damaged channel relationships, and compliance issues. With that in mind, does a linear approach really make sense? It s time for a change in perspective. Channel operations are inherently cyclical. Thus, the activities that drive these operations like managing revenue should be treated as lifecycles, not linear processes. Take this diagram. In the end, it s about creating effective B2B agreements, leveraging the terms of those agreements to drive the most profitable activities, executing payments, then analyzing it all in order to that s right create more effective B2B agreements. And so it begins again. By shifting our viewpoint, we see a process that is integrated, repeatable, easily automated and, finally, is fully measureable. 5

Treat Contracts as Living Documents Contractual agreements are the foundation on which every B2B relationship is built and the point of initiation for every revenue management lifecycle. As such, it is impossible to truly approach revenue management as a lifecycle without including contract management. Many leading companies have already streamlined contract management processes, using automation, rules engines, template and clause libraries, and storage repositories. These tools are all useful in streamlining processes and speeding the time it takes to get a deal signed. But what happens after getting all the signatures on the bottom line? It is essential to move beyond a tactical approach to contract management that hinges simply on accomplishing a checklist of items to get the deal closed. The living terms and conditions of a contract dictate the ongoing activities that are essential to success. Measuring channel performance against the T&Cs of the agreement is the only way to guarantee contracts are being executed as intended and, later, to gauge performance of promotional programs. Plus, by ditching the sign and file mentality, companies experience a lower instance of contract disputes and other channel issues. The performance of contracts is better monitored, enabling companies to more accurately predict and ensure success. 6

Integrate Contract and Revenue Management When approaching revenue management as a lifecycle rather than a linear process integration across related systems is critical. Many companies use solutions for managing their contracting processes. The market offers an array of solutions that include workflow tools and basic features like repositories or T&C libraries. There are also solutions available for tracking incentive activities once agreements are active. However, little true value can be obtained from these solutions, unless they work in an integrated, concerted manner. Integration or interoperability amongst applications for contract management and revenue management will save significant time and money by improving insight, reducing manual efforts, eliminating redundant tasks, and ultimately minimizing the risk of costly payment errors or noncompliance with contract terms. When contracting and incentive systems connect, you can: Accrue and pay incentives exactly as specified in contracts Protect profit margins from risk of overpayment Safeguard channel seller relationships from impact of underpayment Support compliance with financial reporting regulations 7

Maintain Systems of Record When implementing a revenue management system, many companies question the ongoing role of core systems like enterprise resource planning (ERP), customer relationship management (CRM), or supply chain management (SCM). It is extremely important for these systems to remain the systems of record. For example, payments should always be executed by the ERP system. The revenue management can and should, via web services, leverage data from all systems of record and be able to transmit information back to those systems when performing incentive and agreement reconciliation activities. This eliminates manual or batch operations, ensures consistency and accuracy across systems and department functions, and 8

Use Analytics to Create Data-Driven Operations In the end, creating an integrated environment between revenue management, contract management, and enterprise systems of record creates a wealth of information from which much value can be extracted. This deep insight into contract and revenue management operations is leveraged to optimize the development of offers and incentive programs for better outcomes and to enable better decision making throughout the entire revenue management lifecycle. The right analytics can provide answers to some critical, but difficult business questions like: How effectively is our team processing contract price updates? What are the rebate price and tier used to determine the final payment amount? Are our accruals sufficient to cover our anticipated channel-related expenses? How effective are our incentive programs in driving sales? By analyzing past performance, companies more easily determine which decisions and actions will have the best impact on the bottom line, then leverage that information to build more profitable agreements and incentive programs in the future truly solidifying the lifecycle approach. 9

And So... For companies managing complex distribution channels and pricing strategies, establishing standard revenue management practices is essential. Execution of pricing incentives, ship-and-debits, royalties, and other revenue can get complex too complex to execute manually. If not managed properly, errors can easily result and go unnoticed slowly snowballing over time, resulting in revenue loss, inaccurate accounting, and unfavorable profit margins. Having a formalized system with firm guidelines will help along the path to success. When it comes to effective revenue management, the right system will automate and streamline complex pricing strategies and incentive programs to enhance performance outcomes. By developing and implementing a plan for revenue management, companies will optimize strategic pricing management at each point of the distribution chain, develop more effective agreements, identify new opportunities, better plan for demand, and reduce margin erosion. 10

About the Author Revitas is the leading provider of enterprise-class solutions for channel and contract management, on premise and in the cloud. Revitas solutions enable organizations to accelerate revenue through diverse, multi-level sales channels and attain maximum value from contracts. For over 25 years, Revitas has empowered companies in channel-intensive industries to achieve best-in-class performance and sustainable competitive advantage. For more information, please visit www.revitasinc.com. 11

The Revitas Difference For channel-centric organizations, only Revitas helps to: Accelerate revenue Lower costs Provide actionable intelligence Improve partner engagement Because only Revitas delivers: Enterprise-class solutions that tailor channel management to meet the needs of the business A secure cloud platform that seamlessly scales to manage the industry s most complex channel structures and highest transaction volumes A world-class professional services and partner ecosystem 25+ years experience implementing best practice channel management solutions across the world s most challenging, channel-intensive industries 2015 Revitas, Inc. All rights reserved. Revitas helps organizations accelerate revenue through diverse, multi-level sales channels by delivering enterprise-class solutions that tailor channel and contract management to the needs of the business. www.revitasinc.com