Thoughts on whether to communicate Floor Prices to your own sales team
Revenue Control: Sales-Friendly Approval
Set up your revenue control approval workflows so they serve their purpose but also are sales friendly and not hindering the sales process.
This is an article in a series about Revenue Control. Check out the main article on Revenue Control here.
When setting up Revenue Control processes, one of the key building blocks is to establish approval workflows for how changes to the net net price (remember Revenue = Net Net Price X Quantity) must undergo approval.
Sometimes to get a managerial perspective to the new NNP, sometimes simply to make it difficult to get approved and discourage sales people from even trying. Imagine balancing between telling the customer to accept a higher price or having to ask 3 VPs for permission to change a price to a lower one. Most sales people will try to sell the customer on the higher price.
But sometimes approval workflows can also slow the sales process down, even to the extent where it takes so long to go through all approval steps that the customer has gone elsewhere.
One internal KPI that is therefore important to monitor is time taken from revenue change request submitted until the customer can actually order at that price. If you know it takes 3-4 weeks on average for a sales request for a new NNP to go through, then it is almost certainly too long.
Some methods to use to make the approval process go through faster and be more sales-friendly include:
- Use KPIs and targets to only send some NNP change requests through approval: e.g. if you are using a floor price concept, then any price that is more than X% above the floor price should be automatically approved. No need to go through approval if it is a very profitable price.
- Use a combination of Target Price and Floor Price, and differentiate the number of approval steps depending on if the NNP is:
- Above Target and above Floor: let it flow through
- Below Target but above Floor: very simple approval
- A little bit (X%) below Floor: more complex approval, so it is no so easy to go below Floor
- Much more (Y%) below Floor: most complex flow, with senior managers, so discouraging to sales people
- Use parallel approval rather than sequential approval: Sequential means first Person A approves then Person B approves. Parallel approval means that either Person A or Person B approves. This very often speeds up time to approve considerably.
Conclusion: revenue control can certainly improve profitablity in most B2B businesses and a key element is setting up approval workflows. But by designing the workflows in a smart way and monitoring the time-to-approval continously, the approval can become more sales-friendly and not inhibit the company's ability to quote and price in a speedy manner.