Generating revenue is one challenge, transforming it into value is key

Revenue is the most important parameter of every single business: without revenue, no value. It is the ultimate reflection of the market appreciation of your products or services and rewards all the investments made. Revenue is the result of the chosen 4P (product, price, promotion and place) mix. And yes, it gives a fantastic boost when you sign up a new customer or sold magnificent volumes. Let the revenue come! Or not?

 

The good and the bad

In order to create (shareholder) value, revenue is indeed an essential element. However, not all revenue is equal in terms of value creation: there is "good" revenue and "bad" revenue. "Good revenue" is the revenue that generates maximum long and short term shareholder value and which is aligned with the strategic goals. It are customers that have a recurring profile or who have been acquired with reasonable commercial investments. It is revenue that requires only little changes to your products or processes and the enhancements made can be leveraged over many other customers.  It helps the company to grow and to make it stronger and last but not least: it is revenue that generates cash in the short and long term. "Bad revenue" is the complete opposite and destroys direct or indirect value. It are customers that can only be served with a huge amount of dedicated resources. Serving these customers requires a focus shift of organisation, leading to opportunity loss. Or even worse, it is revenue whereby a company can not meet the customers' expectation. It are customers that are won with irrational (commercial) investments, just to get them onboard.

Although we sometimes can not avoid this bad revenue (filling up capacity, competitive game play,…) it is important to be fully aware of the purpose of getting these revenues and to safeguard the temporarily character of these revenue streams. However, these cases are very rare - generally speaking, grabbing bad revenue is most of the times more destructive than leaving it on the table.

 

The quality of revenue in terms of value generation has a wide variety and all comes down to the total investment needed to acquire and / or retain the revenue.

Despite some extra-ordinary success stories, most companies do not have products with a pull effect and need to pursue a push strategy, where they have to fight and invest for every customer or increase in market share. In order to acquire these customers, both direct and indirect investments need to be made. The commissions paid to your distribution channel, the gift you give to your customer, the marketing expenditure to communicate with your target group and the (promotional) discounts given are the most visible cost elements. But there are also some 'hidden' cost: exceptional product adaptations to be made, extra warranties, additional logistic costs, changes in your production processes, different payment terms and bad debtors all have an influence on the final profitability of your customer and product portfolio. The same counts for the costs to serve a customer: some customers require dedicated support, others have specific billing requirements,…

  

Revenue quality insights drives commercial decision making

It is important when making a decision to hunt for certain customers or market segments, that you have a full view on the total value that can be generated by these customers and how they impact your company's profitability and operational effectiveness:

• How much commission do we need to pay to the acquiring channels?
• How many sales FTE are needed (direct and indirect)?
• Are adaptations to the product required?
• What is the level of after sales support needed?
• How many marketing expenditures are needed to reach the target audience?
• Are price discounts needed to be given?
• What is the strategic importance of the customer?
• ...

Once acquired, it is essential to keep monitoring your existing customer portfolio on profitability KPIs. This enables you to steer your commercial investments and determine or fine tune your commercial strategy, including your distribution mix, towards profitable revenue.

 

We can help you identifying good revenue

We have executed several customer profitability projects, starting from the analysis phase based on historical data to the development of a commercial strategy and execution that embraces the principles of 'good' and 'bad' revenue. Interested to see how we can help you to increase the level of 'good' revenue? Fill in the below form and we will jointly increase your value!