The Journey to Revenue Management

Analyst Viewpoint

Revenue Management and its operational support by way of Revenue Operations is a relatively new concept that reflects the reality of changing business models. The rise of the subscription and usage sales models is a driving factor in the change, along with e-commerce and omnichannel selling. The result is that the traditional emphasis on new business from new customers has now expanded to include a renewed and equal focus on customer retention, customer success, and expansion and upsell into the existing customer base. Together, these stand as three pillars that enable a more unified Revenue Management approach: new business and customers; customer retention; and expansion and upselling supported by organization-wide customer success efforts.

Effective Revenue Management recognizes the varying priorities and time horizons of short-, medium-, and long-term needs.

Effective Revenue Management recognizes the varying priorities and time horizons of short-, medium- and long-term needs to address new business, renewals and retention, and expansion within existing customers. Organizations typically have mechanisms to address all three of these pillars, but they are often siloed activities that are not aligned with each other or to the organization’s revenue management objectives. This can cause overemphasis on one pillar at the expense of others, for example when an organization skews resources and focus into new business only, thus putting customer experience and retention at risk.

Revenue Management and supporting Revenue Operations activities require alignment so that the three pillars are simultaneously met. As annual recurring revenue (ARR) becomes more important to overall business models—whether natively or as a mixture of one-off sales and subscriptions—focus will need to change within organizations that are adopting these models. Cultural change must be accompanied by operational change that reaches people, process and technology. And to overcome the natural human response to preserve the familiar, leadership must provide direction and rationale as to why process and organizations need to change at all.

To achieve the goal of a more unified management of all sources of revenue, sales, marketing and customer success need to be closely aligned, with shared playbooks, plans and behaviors that can be audited across the organization. Sales needs to have integrated objectives with marketing. Marketing, in turn, needs to recognize that communication with existing customers is part of customer success and of equal value to building rapport with a new market. Indeed, when organizations already have a broad product and service portfolio, or multiple regions or business units, new business may well come from the existing customer base.

Digital commerce and omnichannel selling are key drivers of the need for improved Revenue Management, as are other external competitive pressures. The cost of customer acquisition is such that for customers to remain profitable, they need to be retained to make repeat purchases. In a subscription or digital commerce world, the cost for a customer to switch to a competitor is potentially low, while the cost to an organization of losing a customer is high. This emphasizes why the customer experience is crucial not only to retention and repeat business, but also to new business since customer advocacy (or negative sentiment) can have significant impacts on a brand.

The biggest impediments to operational change in general are often a fear of the effort required, potential disruption of activities, and a lack of articulation of benefits as part of an understanding of return on investment (ROI). Often the “do nothing” option is perceived as the lowest risk, even when this could result in the greatest competitive threat to the organization. When conducting ROI analysis, however, the time-to-value element is a crucial component in understanding the viability of any proposed transformational change.

Another important point for organizations to understand when considering a Revenue Management and Revenue Operations path is that this does not have to be some large-scale, disruptive, big-bang project. There are incremental steps that can be taken, each yielding an appreciable improvement in retention, expansion or new business. To plot a path forward, first assess where the organization is relative to unified Revenue Management. Consider the following questions as part of that assessment:

• Is there a clear owner of an overall revenue number?
• Are there clear objectives for Marketing, Sales and Customer Success at every stage of the customer journey?
• Is every handoff between teams synchronized via an overall playbook?
• Do systems enable easy tracking of responsibility and compliance for each stage of the customer journey?
• Is the organization able to effectively measure and improve performance across each stage of this journey?
• Is the organization using data and data science to augment demand generation and lead qualification, and to assist selling, predict churn and identify expansion opportunities?
• Do Marketing and Sales continue to stay involved with Customer Success after the sale to enable cross-sell, up-sell and referral opportunities?

The answer to any one of these questions on its own will help build a roadmap for incremental improvements, and together, over time, will provide focus, alignment, and the ability to enable measurable improvements in retention, expansion and new sales. This journey to a more unified Revenue Management approach puts the organization on a path where substantial gains can be realized.