Revenue Optimization & Pricing Insights

Revenue Control systems (see e.g. https://blog.stratinis.com/revenue-control-continuous-incremental-profit-improvements) are very efficient ways of improving pocket prices and thus profitability in most B2B industries. But as with most things in business, it is important to not only introduce a new system but also getting the people on board. When it comes to revenue control systems, the sales people are often the most important ones to get on board.

Some tips to remember when implementing revenue control with the sales team:

• Demonstrate how the system is easy to use and often gives them better information about their customers and deals
• Ensure that the process doesn't take longer than today, nor takes so much time to get approval that deals are lost. Ideally, use the revenue control system to speed things up so sales people feel they can close faster.
• Equip the sales team with value arguments and negotiation techniques, so they feel comfortable presenting prices and increases to the customers.
• While some parts of the revenue control system might feel like a black box, generally communicate as much as possible internally (externally is a different matter)
• Repeat internally that revenue control helps improve profitability and is for the good of the company
• Train, train, train in value selling and value argumentation
• Differentiate approval workflows so only those prices that really need it (i.e. they are low) go through elaborate approval. Good prices (read: high) should be auto-approved with a minimum impact on time and effort.

We have helped customers in a variety of industries implement revenue control systems and generally see payback in less than 3 months. Get in touch and learn how we can help your company.

According to several studies in B2B (whose customers may sell to consumers in the end) the difference between the list price and pocket price, after all discounts and rebates, is between 20% and 50%. In other words, it is "industry practice" to give discounts and rebates worth 20 to 50% of the gross revenue. While it sounds high, it might not in itself be a problem, as it is typically the net net price that is used as KPI, both to drive profits but also to push price increases through on. In simple terms: it is not in itself a problem if the gross price is 200 and the pocket price is 100, as it is the 100 that both buyer and seller consider and use in their business endavours. But what IS a problem is when all of those discounts and rebates are provided without getting anything, or little, in return. There is where a Business Driver framework can be useful as well as highly profitable.

A Business Driver framework means having an (internal) framework for how to classify and measure discounts according to what they give in return. It is simplest to explain by illustrating it (thanks to our partners at Stratinis for this illustration from their price management software):

In the above example, each discount given from the seller to the customer is classified according to its purpose, in addition to whatever general P&L classification that discounts sits under in the P&L/chart of accounts. In other words, ERP and the finance department may have their own P&L classification, but for the sales/marketing/pricing team, the business driver classification is an additional way of looking at all customer monies.

Steps in setting up a business driver hierarchy involve:

1. Creating the overall classification framework. This can typically be done in 2-4 weeks depending on the complexity of the business and the current sales.
2. Classifying all discounts according to the framework. Using Pricing Management Software it can be automated, otherwise you risk it becoming a burden on the sales team, and thus meet a lot of resitance
3. Evaluate what type of business drivers you spend on. Make actions on what to change
4. Enhance the framework by adding pre-contract obligations on your sales force to make a good business case for the discounts they intend to give during customer negotiations..

Steps 1-3 can be done without burdening the sales force too much. But the mere presence of such a framework and internal communication about, will start changing certain discount behaviours. In a previous case we saw how a company reduced their "Other" category discounts from 30% to 20% over 12 months, simply by making the negotiation teams aware of getting something in return. Steps 1-3 can it itself improve discounts by 2-4% of net sales in larger, complex businesses.

Implementation of Step 4 can also improve net sales but is a much longer process with heavy involvement of the sales department. Therefore many companies choose to pick the much more accessible fruits in steps 1-3 first.

Get in touch with RevBeam and learn about how we have helped companies set up Business Driver frameworks and improved profitability as a result.

Good points in Stratinis' blog post about revenue control and workflows: https://blog.stratinis.com/revenue-control-sales-friendly-approval

At RevBeam we have worked with several companies to set up their revenue control processes. It certainly is key to keep internal track of the Time-To-Approval KPI and generally try to reduce it as much as possible. It helps commercially with the customers, but also helps with the buy-in from the sales team to feel that revenue control and approval process is speedy and not hindering the sales process. 

Great and promising article series over at Stratinis: https://blog.stratinis.com/revenue-control-improve-profits-in-complex-businesses

At RevBeam we can help you establish the process for revenue control, including defining KPIs, price waterfalls and approval processes to get maximum benefits from a revenue control system.