What I’ve Learned Thinking About Revenue Management

The PACE Revenue Management Monograph contains a great deal of information relatively new to the management accounting domain. As a management accountant, I have primarily focused on cost management and analysis in my career…a topic my customers (inside the company) dread discussing with me.

As I have thought about Revenue Management from the PACE perspective, I have come to realize that Revenue Management is just another path, a much more positive path, to cost and capacity techniques. A central learning from the Revenue Management Monograph is the 4 levers of revenue Management. Here’s my thinking about how managerial costing supports them.

Lever 1: Pricing Basis – Meaning, Pricing should be based on the value of specific attributes to customers and customer segments. My thinking: This lever has 2 components. First, understanding what the customer values and why. Sometimes this is a preference, but for many customers, particularly businesses, it is an analytical question that management accountants can study in part with cost finding techniques. Second, the cost of various attributes in a product or service and their profitability is clearly a managerial costing area of expertise.

Lever 2: Inventory Allocation – In my view, this can also be called capacity allocation. It is defined as – A constant view to inform price and priority changes – which applies to inventory in a warehouse, seats on an airplane, or providing an on-demand service. This is, in part, a management accounting issue: What is the cost of leaving a saleable resource unsold? What are the proportional costs? What are the fixed costs? If you offer really bargain prices with lots of inventory or capacity, how often will that occur? Are you pushing customers toward becoming bargain shoppers? These are all analytical questions well suited for a management accountant.

Lever 3: Product Configuration – Meaning, New products are regularly created using existing core inputs and processes. Management accountants are well equipped to do the cost analysis necessary to determine if new configurations can be profitable, or if the elimination of configurations can justify a profitable price decrease. This is more than simple “cost accounting” for product or service cost; it involves factoring in the costs of functions like: ordering time, new sales ordering systems, more complex manufacturing and assembly or new service skills, salesperson upskilling, etc. into the analysis.

Lever 4: Duration Control – Meaning, Initiatives to regulate customer orders/arrivals/activity and discourage unique requests with a strong focus on changing customer behavior. What this focuses on is managing customer behavior and management accountants should be able to help identify high, moderate, low, and idle capacity periods and what they cost the organization – either in business that can’t be handled or in unused capacity. Management accountants should also be able to quantify the costs of complexity from unique or complicated requests, ordering patterns, or other disruptive demands. Again, this goes beyond simple “cost accounting” and needs to incorporate customer specific costing for order complexity, order frequency salesperson time, slow payment, excessive customer support, etc.

I strongly recommend that you take a fresh look at the PACE Revenue Management Monograph and think about how you can become more involved in supporting revenue generation and growth in your organization.