The heartbeat of a business really is revenue generation, sales to customers. Optimizing processes and costs is necessarily a secondary event….I’m sorry to say this because I’ve always been a huge fan of this area. As I’ve become increasing sensitive to this point of view, I’ve started asking accountants, many are CFO’s, how involved they are in revenue management. I’m getting a lot of “well, kinda” answers and then a variety of explanations which often have more to do with oversight and control than being a partner for growth.
Revenue management is a big area. Much of it is very much in the realm of marketing and sales professional expertise; but by acquiring greater knowledge of the subject, management accountants can find ways to add value. For example, airlines, hotels, and rental car companies have identified customer segments that are willing to pay vastly different prices for practically the same service based on some key differentiators. This concept can be expanded into almost any business. It has the potential to increase revenue from demanding customer segments by offering the right new elements (often service elements), and acquire new sales from customer segments with marginal interest if the price can be pushed low enough along with some distinctive elements to maintain differentiation from higher paying customers.
The really beneficial thing about revenue management is that it grows the business and that’s positive motivation. Contrast that with the start of a cost cutting initiative! I know process improvement and cost management can be empowering, not necessarily negative; but wouldn’t those efforts be even more positive if the goal was to accommodate more sales revenue with the same resources…and the potential existed for future growth. Interestingly, revenue management discussions inevitably lead to operational and cost discussions, but the approach is far more optimistic. A question like “Where do we have idle capacity?” are a lot safer and more interesting when it is asked when trying to accommodate new revenue opportunities.
The PACE team is in the process of drafting more material to educate and engage management accountants as business partners in revenue management. Look for future IMA Statements of Management Accounting on the topic. In the meantime, share your engagement in revenue management, we would love to have some examples and case studies from your experience. How have you used revenue insights and improvements to engage better in your business and build profitability?