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Sales Consulting & Increased Profits

Customers Are at the Core of Profitability Part 2

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Revenue execution

What is required to manage the complexities of executing a revenue strategy? There are four primary steps required in the revenue execution process: pricing strategy, pricing and contract management, compliance, and settlement. Enterprise software solutions are emerging to address every step in this process.

1. Pricing strategy
In this first step companies determine all the pricing methods and promotional and incentive programs they wish to make available to customers. Frequently they offer different pricing methods and programs for each product line and market segment. An effective pricing-strategy software application should be equipped to handle the management of multiple pricing models and promotional programs, the setting of price floors and negotiation bands to provide the sales force negotiating flexibility, and the dynamic segmentation of customers and products. Traditionally the pricing strategy step is managed centrally and owned within marketing.

2. Pricing and contract management
In the second step, pricing and contract management, a company's pricing strategy is applied to actual customer offers and long-term customer contracts. This step usually occurs in sales or sales operations where offers are created based on guidelines set by marketing. For offers based on standard company pricing and promotions, internal approval can be automatic or streamlined, but for non-standard offers, internal approval is necessarily more complicated. Because approval of one-off offers can include multiple members of the sales, marketing, finance, and legal departments, obtaining the necessary approvals can be a time-consuming process. Appropriate software can facilitate and expedite the approval process by determining what exceptions need additional approvals and automatically forwarding them to the required approvers.

Once a customer offer is accepted, the terms of the contract or agreement should immediately be reflected in the company's ERP system, requiring input of the price for each product sold, typically by a manual, error-prone process. A pricing and contract management system should automate the input of new pricing into the ERP system, immediately enabling correct pricing on new invoices. For customers with multiple contracts in place, the pricing and contract management system should have the ability to resolve pricing ambiguity and automatically quote the correct price.

3. Compliance
Perhaps the most important aspect to a revenue execution system is the ability to record customer commitments. Discounts and other concessions in the selling process are often associated with customer commitments, such as promises to purchase specific volume or dollar amounts.

The ability to record these commitments and to track customer performance against them is an important tool for account management, providing insight into the effectiveness of a company's revenue strategy. Yet without a revenue execution system a typical company will only investigate customer compliance to contract terms annually at contract renewal. If companies had ready access to compliance information they could use it to ensure customer compliance to negotiated terms.

4. Settlement
The fourth step in the revenue execution process involves the calculation and payment of incentives and fees due to customers or channel partners based on purchase history. Incentive rebates, for example, can be offered to customers who reach a given purchase threshold, which, along with its associated rebate, must be negotiated into the contract. The actual incentive payment is based on orders placed against the contract once that threshold has been reached. With a software product for settlements (such as rebates), the incentive terms can be recorded, purchase information can be pulled automatically from the ERP system, and the payment calculated on a regular basis. Without such a system administrators must manually manage this cumbersome process.

Relying on manual business processes in executing a revenue strategy results in revenue leakage, increased operating expenses, decreased customer profitability, and degraded customer satisfaction. Companies seeking competitive advantage through complex pricing strategies require equally complex technology. Smart companies that explore revenue execution solutions to manage their contracts and pricing will discover that they can increase revenue and margins while lowering operating costs, improving existing customer relationships, and gaining visibility into the overall revenue impact of complicated deals.

Jamie Schein and Zack Rinat

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