Companies typically have a sophisticated process for managing expenses and cash flow – which comprise the cost side of the profit equation. Board governance demands it and ensures it through audits, loads of paperwork, risk assessments, and a slew of checks and balances.
But how about missed revenue opportunities? For various reasons, companies often don’t apply the same sort of rigor and discipline to the revenue side of the equation. They need Revenue Governance.
Executives tend to have more comfort managing the cost side, yet don’t realize that the revenue side is often more profitable and a lot more fun to manage than the cost side.
Now, companies must pay equal attention to the revenue side of the profit equation. This dynamic mindset begins by acknowledging that missed revenue opportunities are the greatest source of additional profits. After all, it is the revenue that you could have or should have that is the most difficult to find, but also the most profitable because incremental revenue drops straight to the bottom line. In addition, companies need to change their business acumen when it comes to their customers, asking themselves questions such as:
- “What was the customer willing to pay? Would they have paid more? Did we have a competitive advantage (brand preference, product availability, etc.) that the customer valued more than we charged?” Understanding what the customer is willing to pay and would they have paid more can uncover insights into customer spending and predict where additional profits can be found.
- “Were the price schedules accurate and appropriately targeted to specific market segments? Have market changes made them obsolete? Even if they were right, on average, could we have landed incremental business by giving discretionary discounts to strategic market segments?”
- “How much did inventory outages reduce sales? Were we out of one product so that the sale of another product we had in stock was jeopardized? Were we overstocked in one region, but under stocked in another? Could these inventory imbalances be better addressed by price rather than by physically moving the goods?”
Leveraging scientific and sophisticated revenue optimization capabilities can answer these questions. Not only will these answers evoke an innovative culture and reverence for Revenue Governance, but also deliver a substantial amount of organic revenue growth.