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        Stephen Hurrell's Analyst Perspectives

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        Revenue Management: The Opportunity for Innovation and Optimization

        With modern enterprises adopting and expanding their digital business with subscription and usage business, organizations need to think beyond the primacy of sales as their source of business success. A sustained customer experience is key, representing an organizational and cultural shift from the traditional emphasis on new sales to an equally important focus on customer retention and upsell/cross-sell opportunities. This mindset is also important to organizations involved in digital commerce where the cost of customer acquisition and narrow margins means retaining customers for repeat purchases, which is vital to a sustainable business.

        VR_2021_Sales_AssertionAs part of this change, we have seen many organizations appoint a Chief Revenue Officer. While responsible for new business, the CRO is more focused on all the buying and selling channels, including upsell and cross-sell opportunities and potentially for securing renewals as well. This CRO leadership, along with leaders of Customer Service / Success (CS), Marketing and the direct and indirect revenue through channels and partners, will be important to ensure alignment and understanding of shared goals. We assert that by 2023, almost one-quarter of organizations will establish a Chief Revenue Officer leadership role, focusing on all channels of revenue, not just direct sales.

        Accompanying this refocus on all channels and types of revenue and sources should be a new alignment across organizational areas of responsibility. As most recurring and subscription models will show, retaining a customer’s business is not only important for revenue growth, but also for profitability. Constantly churning customers are not profitable; retained customers with both renewing and expanding revenue streams are. This results in each of the departments related to revenue needing to think holistically on three different time horizons. For new business, the typical focus is on closing business in the current quarter. In the medium term, customer retention is key and over the longer term, expansion business coming from existing customers. Sales needs to work closely with CS as their concern is with both the efficient onboarding of new customers and ensuring a positive journey such that Sales can either expand the footprint or introduce line extensions. Marketing needs not just to think of overall branding and lead generation, but also communicating consistently across the customer journey. This will include enlisting references and testimonials, as well as information on best practices and use cases from other customers. In addition, Marketing should be working with CS to ensure that customers understand on a continuous basis how they benefit from the relationship and using the products and services.

        In a digital world, traditional activities such as backward-looking quarterly business reviews (QBR) need to be augmented with automatic reports that show the customer how that particular provider benefits their organization. Likewise, with increasing volumes of products being sold through digital channels for B2C and B2B, market, product and customer segmentation will ensure that the right channel is being communicated to buyers to ensure a frictionless experience, whether via field and inside-sales teams, reseller partners or self-service digital channels.

        In support of this changing organizational focus and shift to a broader remit, technology needs to be less about operational silos and more about integrated operations. Revenue operations should govern and provide visibility to departments supporting revenue and customer engagement allowing measurement across all teams and ultimately alignment.

        Having a unified approach for revenue operations to support revenue management will require change throughout the organization, including new leadership skills and a rationalization of tools and technology across previously siloed groups in Sales, Marketing and CS. If organizations merely rename their head of sales with the title of CRO without a corresponding change in focus, then this initiative will probably fail. A “sales” time horizon is too short for a real revenue management strategy.

        VR_2021_Sales_Assertion_3_SquareThe applications to support revenue management is still a nascent market, and although pieces of the technology puzzle that will support this approach exist, they are not yet unified nor integrated. We assert that by 2022, more than four-fifths of organizations will limit the effectiveness of revenue management with an incomplete view of a customer’s lifetime journey from lead, engagement, purchasing, onboarding, renewal and expansion.

        This new category of revenue management will have existing technology vendors rethinking their offerings. If departments supporting revenue channels and their corresponding operations teams are no longer independent, then to achieve the desired outcomes, the relevant offerings must also align. Organizations need to look at vendors who provide a comprehensive platform offering and suite of applications, or those that surround the CRM system where the sum of the parts is greater than the whole. Any eventual comprehensive technology application will need to pull together not just the organizational areas for revenue channels but also integrate across related applications like pricing optimization, digital commerce, product information management (PIM), configure-price-quote (CPQ) and billing and subscription management.

        Rivalling the ERP ecosystem, revenue management software will emerge as a potential game changer for customers seeking to manage their channels and types of revenue for digital business as unified process, as well as offering vendors new areas to add value to their existing customers and prospects.

        Regards,

        Stephen Hurrell

        Authors:

        Stephen Hurrell
        Director of Research, Office of Revenue

        Stephen Hurrell leads the Office of Revenue software research and advisory expertise at Ventana Research, now part of ISG and guides leaders in the applications and technology for buying and selling products and services to maximize revenue. His topics of coverage include digital commerce, partner management, revenue management, sales engagement, revenue performance management and subscription management.

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