Revenue recognition can be a challenge, but it’s much easier when finance can automatically generate the appropriate revenue schedules for products, services, and subscriptions based on your contracts and agreements. For example, a revenue schedule for a physical product can be automatically set-up for a one-time revenue recognition in month one, while subscriptions will automatically be set-up for monthly revenue recognition across 12 months. Finance can also automatically incorporate the most up-to-date guidelines for revenue recognition and deferred or delayed revenue. They will also appreciate an automatic and easy way to set revenue recognition rules based on product, service, and subscription price lists, as well as complex bundling set ups. Revenue recognition can be a challenge, but it’s much easier when finance can automatically generate the appropriate revenue schedules for products, services, and subscriptions based on contracts and agreements.
For example, a travel company can use this technology to automatically raise prices around the time of an annual music festival in the area, or it could automatically update its pricing once festival dates are released. While dynamic pricing can sometimes result in higher prices for consumers, it can also offer discounts during periods of low demand, creating revenue opportunities in times of high price elasticity. Within a year, the program doubled the global impact of RGM and contributed more than 2 percent revenue growth. Crucially, even though the company took different actions across markets, the fundamental RGM approaches were consistent.
Why Revenue Management is Important
Sales effectiveness ensures that the sales team can convert leads into customers. Together, these three pillars provide the framework for an effective revenue management system. In revenue management, customer segmentation sets prices that maximize profits while still attracting customers. To do this, businesses first identify different customer segments, then determine what each segment is willing to pay. This information is then used to set prices to maximize revenue from each group. Revenue management is an essential concept in several industries because it is a critical factor in profitability.
This data can then be used to make informed decisions about pricing and inventory levels. Creating accurate forecasts can be challenging in a rapidly changing market, but it is essential for businesses that want to stay ahead of the competition. With careful analysis and creativity, revenue managers can forecast demand, ensuring that their company operates at maximum revenue. Yield management is a pricing strategy that considers the time value of money.
What we want to stress here is your capability to be flexible with your pricing. Think about how you can adapt what you offer and ways for people to pay to be as inclusive and personal as possible. Your pricing plans need to be as flexible as possible to accommodate as many clients as possible. HubSpot is a great example of flexible and accommodating pricing plans to match any business and its needs. Answering each of these questions should help you identify routes to market that work and those that don’t.
Revenue growth management: The next horizon
Organic growth goals should sit at the center of any revenue management strategy. If you’re looking for ways to optimize your revenue long-term, then long-term content is your answer. By combining these forecasts with calculated price sensitivities and price ratios, a revenue management system can then quantify these benefits and develop price optimization strategies to maximize revenue. Run controlled revenue management pilots on a few products, locations, or customer segments before expanding. As you can see, revenue management has broad applications across many different industries.
This approach challenges resources to prioritize gathering market information, fostering a proactive rather than reactive stance. Leveraging this information allows for market segmentation, product adjustments through distribution, and the precise targeting of the right customer at the right time and price. In the first chapter of this eBook, we will go over the definition of what is revenue management in the hotel and hospitality industry. Everything will be explained from the fundamentals of revenue management to more advanced practices and strategies. Revenue management systems can also be used to automate price changes based on specific criteria.
Success factors for RGM capability building at scale
The common thread is using data analytics to set optimal pricing and manage availability. Revenue management helps businesses strategically compete on value, not just price. Revenue management is a versatile concept that not only aims to maximise revenue during peak demand periods but also seeks to stimulate demand during slower periods, all while avoiding pricing cannibalism. The strategies involved address both short and long-term actions, constantly balancing revenue and profitability considerations. This flexibility even allows for applying lower rates during high-demand periods when deemed strategically advantageous.
In turn, forecasting enables companies to react when faced with low demand periods. It also allows them to design different rate levels and select optimal distribution channels. However, if you’re on flexible, monthly pricing plans like HubSpot, this may not always be the case. You may see you’re losing revenue but not customers, which means customers are going for cheaper plans.
The result was a significant increase in sales and household penetration for the category. Furthermore, the company was also able to provide a new suite of insights to some of its retail partners, significantly strengthening those relationships. After implementing strategic RGM, the company reversed its downward trajectory and is on track for a 10 percent revenue increase over three years.
