Revenue management is the application of well-organized analytics that forecasts consumer behaviour at the retail level and boosts product accessibility & price to enhance revenue growth.
In an internationally competitive business environment, firms are constantly trying to enhance their profitability.
A revenue management system is an effective tool to accomplish the objective with comparatively low technological investments and at present, has extended to several sectors.
The way revenue management instills within the organizational framework relies on the kind of sector and the particular organization. Certain firms have it as part of the marketing department while some place it within the finance department.
In certain organizations, a Chief Revenue Officer manages various functions – marketing, product development, and brand management.
Supply chain management and revenue management have many basic harmonies. SCM is a crucial process in several organizations and is getting interfaced with a revenue management system.
Business Intelligence systems have also been combined with this process. These platforms provide data that can be used for informed decision making.
An organization must evaluate its demand structure and segment its clients on the ability to pay. After the segmentation, the pricing strategy for each segment must be determined, and then the statistical demand for distinct segment must be estimated.
The operating scenarios of production and services sectors differ to a large extent.
For several financial personnel, managing revenue efficiently is extremely challenging. In the context of the amalgamation of uncontrolled regulations, changing guidelines and stringent penalties for noncompliance, revenue management can be very complex for the capabilities of finance personnel.
In the context of these obstacles, firms are thinking about automating revenue management processes to enhance efficiency, augment compliance, and improve transparency.
The strategy to simplifying it begins with processes developed from the top down method, on the basis of information from various stakeholders and activities.
The capability to establish the technology that simplifies and centralizes the revenue management process is also very critical. Cloud-based technology enables finance personnel to link with systems, automate processes, and review business performance.
The four critical complexities are as follows:
The regulations are complex and difficult to infer because firms implement multiple non-standard agreements with the clients.
According to experts, revenue recognition is one of the most prominent Sarbanes-Oxley Act Section 404 internal control issues reported by auditors.
Revenue forecasting is not easy to determine. Again, a normal income statement cannot differentiate between once and frequent revenue.
Currently, several organizations are utilizing user-friendly spreadsheets for key revenue accounting activities. Simple and complex spreadsheets used by one person need extraordinary endeavour to construct and manage. Even then, all advanced spreadsheets have errors. They are not easily auditable.
In certain sectors such as IT, this system is very complex since it is difficult to allocate revenue across elements and the duration of revenue recognition.
Currently, vendors and buyers are leveraging the software as a service (SaaS). Revenue recognition issues happen when various components and discounting relate to a SaaS contract.
SaaS firms depend on metrics like monthly recurring revenue, which are different from normal IT businesses.
In service-oriented businesses – technology execution, law, and accounts, this system is affirmed on specialised contracts and distinct terms.
In these cases, project-delivery results are connected to recognizing revenue. The revenue recognition method requires the firms to document billable time/expenses and monitor project performance to link proceedings back to the contract types.
Hence, firms are seeking to automate revenue management to accomplish enhanced compliance, better visibility, and reduced costs. It encompasses every function in an organization, the process automating does not begin with IT.
The process of automating the revenue accounting management can deliver substantial results – quick period closes and cost control.
In order to streamline and optimize the system, firms must leverage the technology that enables the finance personnel to link systems, automate processes and evaluate the business on time.
Streamlining the process eradicates data duplication that occurs between finance and other departments, thereby decreasing errors and reducing time.
The most optimal accounting systems link key business systems – CRM, services management to develop a robust ecosystem for revenue management.
Every organization’s revenue recognition process differs based on the distinct business model, products, and market conditions.
In order to automate the rigid process, revenue stakeholders must have the capability to arrange the relevant procedures that replicate the complexities of the business operations.
The automation of revenue recognition process can significantly reduce workload for personnel, decrease spreadsheet errors, and enhance efficiency.
Top-notch revenue management systems deliver an insight into both existing/deferred revenues by projecting accurately the future revenues. They enable organizations to evaluate the effect of changes to products and pricing on revenue.
The process of comprehending the system begins with efficient top-down processes. It is only afterwards that technology should be used to automate the revenue management process.