Since its inception in the early 1980s, the practice of revenue management has become commonplace across a whole host of verticals. Typically defined as the ability to sell the right product to the right customer at the right time for the right price through the right channel, it has evolved into something of an art form across many consumer-facing industries, and as individuals we are subject to its effects on an almost daily basis, often without even knowing it.
Revenue management relies on the fact that customers are willing to pay a different price for using the same resources. The concept has its roots in the aviation industry, where airlines started to become creative with their ticketing prices by forecasting demand and predicting customer buying behaviour with the goal of ensuring that their planes would fly as full as possible, thereby maximising revenue. As a result, we now all readily accept that flight prices fluctuate depending on the date of departure, the time of the booking, and the channel through which the reservation is made. And where the aviation industry led the way, hotels, sports arenas, restaurants, and supermarkets – to name just a few – were quick to follow.
The definition outlined above works fine when considering a single transaction for a perishable product or service, but it doesn’t really take into account the long-term relationships that exist between buyers and sellers, nor the inherent complexity of sales transactions in the business-to-business space. That isn’t to say that such revenues cannot be successfully managed, just that a more thorough and holistic approach is required. And that approach can best be summed up as enterprise revenue lifecycle management (ERLM).
ERLM is much more than just the management of revenue to fill empty seats on an airplane; it is the process of maximising and managing an organisation’s revenue throughout the entire lifecycle of its relationship with the buyer. Implemented correctly, ERLM serves as a business function through which the enterprise establishes practices, policies, procedures, controls, and incentives to ensure that its workforce (and third parties) drives sales and revenue that both grow and remain profitable throughout the lifecycle of the customer relationship. But what are the key components of a successful ERLM strategy and what organisational mindset is required to ensure its smooth implementation?
The pressure on Middle East businesses to grow their revenues as fast as possible brings with it tremendous risk as a large, but badly structured, deal, or inappropriately recognized revenue, could bring down the entire enterprise. While that may seem unnecessarily alarmist, I’ve lost count of the number of times I’ve seen marketing and sales departments unwittingly create conflicting promotions, rebates, and incentive programmes that have had the net effect of reducing revenue. In each case, the intentions were honourable, but the lack of in-built collaboration and disclosure hit the bottom line hard. ERLM seeks to rectify that, presenting an opportunity for enterprises to reduce their financial risk while also delivering better deals that make sense both for them and their customers.
The first step toward facilitating effective ERLM is to ensure that the enterprise embraces a corporate culture that actively encourages teamwork and transparency. This starts with an awareness that revenue activities are happening across the entire organisation and also requires an understanding that no single department owns all the responsibility for revenue. This responsibility is typically deposited at the feet of the sales team, but this outdated attitude has to change since virtually every employee across the enterprise now makes frequent decisions that can impact revenue.
For that reason, ERLM must have eyes across the entire organisation. Those tasked with its implementation must comply with the latest regulatory standards on precisely when different revenue components can be recognised, ensuring revenue comes into the organisation appropriately and at the right time. They must also ensure that the right price is being offered to the buyer, that trading and channel partners are properly incorporated into the process that salespeople know how to structure and configure deals correctly in the first place, and that sales, marketing, finance, inventory, pricing, and supply teams are working together and using integrated systems and processes
To this end, an effective ERLM strategy should focus on answering a broad range of questions: What prices should be offered for particular products in specific geographies? Where are discounts being offered, how much is discounted, when is it discounted, and why? What can be done to reduce the amount of discounting? Are coupons and offers really driving additional sales or are they just reducing revenue on products customers will buy anyway? ERLM is not just about looking backwards at deal components and growing, but possibly misstated, top-line revenue; it is about examining the past and ensuring that previous mistakes are not repeated.
Ultimately, ERLM is not a negative activity. Individual sales representatives may feel that policies and structures restrict their independence and stifle their ability to be creative, but by acting on their own, they may be bringing considerable future risk to the organisation by selling very large, but very costly, deals. Helping employees understand smart and profitable revenue scenarios should be both enabling and rewarding, as it equips and emboldens front-line staff with the knowledge of precisely how their own revenue decisions impact the success of the entire organisation. That can only possibly be a positive for both the enterprise and its customers.