Learn how to use revenue control to improve profitability in B2B
Revenue Control: Implement Control but Maintain Flexibility for the Sales Team.
Get insights into how revenue control can be implemented but still allow for freedom and scenario building.
Revenue Growth and Revenue Control go hand-in hand. In organizations with many customers, products, price points, discount types or rebates, it is key to keep the net revenue under control. Net revenue being defined as Quantity * (Gross Price minus all discounts minus all off-invoice rebates minus all other monies flowing to the customer). If the company manages gross prices / list prices, but let's sales teams discount arbitrarily, then net revenue tends to tumble as discounts grow.
A good revenue growth system kills two birds with one stone by setting targets and minimum levels for net prices, that serve to prescribe the optimum prices (and thus revenue), based on a series of characteristics, such as customer size, relationship, development, product features, market situation and much more. When the target price for a given product sold to a given customer is derived scientifically, this is certainly solid revenue growth optimization. But similarly, the target prices and minimum prices can also server as managerial tools for revenue control, to ensure revenue standards are met and not eroded by excessive discounting.
An example of such a revenue control approach from Stratinis Pricing Suite looks like this:
1. The software pulls current prices, discounts and rebates from the company's ERP system, that usually is the master repository of such information. But Stratinis Pricing Suite can also combine ERP data with other sources, such as promotional tools, cost databases, competitor databases or many other sources of information that may have an impact on revenue control.
2. The revenue control module then runs a full calculation from gross price to the true net price, including elements from the non-ERP system.
3. Managers and sales teams can easily simulate different scenarios inside the software, running what-if scenarios on quantities, discounts or rebates. Each customer scenario can easily be stored and compared for profitability as well as adherence to revenue and pricing guidelines.
4. All the information is analyzed and compared against current pricing as well as against different simulation scenarios and corporate pricing rules.
5. The next step is the key one in a good revenue control system: send the new, proposed prices and discounts through one or more approval steps.
The workflow can be very simple or very complex, depending on overall needs as well as the culture. In the above, there is a simple red-amber-green warning per product in a proposed deal. The colors are automatically "calculated" by the revenue control software, based on rules about how far or close the actual net price is from e.g. the Floor Price or the Target Price. If the deal contains reds, then e.g. the price approval could go through several steps, and possibly be escalated to senior management. If the deal only contain greens, then it could either be a simple approval workflow, or even no approval required at all.
6. In the final step, the new price, after having been subject to enhanced revenue and profitability calculation as well as simulation, and then subjected to assessment against the target price and the floor price guidelines of the company, the new price is sent back into ERP, e.g. SAP.
If you want to learn more about Stratinis Pricing Suite and our capabilities for Revenue Control Optimization, please get in touch: