By Chanan Greenberg, SVP & GM, Model N
As the pandemic evolves, business-to-business high tech companies are entering a new phase of planning. Manufacturers of semiconductors, tech components, consumer electronics and networking solutions are beginning to address the lingering impact from virus-related shutdowns and economic knock-on effects while restarting operations to return business to scale. To quicken recovery, tech companies are using discounting and incentives to stimulate demand.
This sector is seeing extreme fluctuations in supply and demand, depending on supply-chain relationships and strength of logistics partners. In this environment, high tech companies’ ability to manage complex inventory and a range of pricing strategies will be key to navigating market volatility, maintaining long-term customer and channel engagement, and achieving continued revenue success. In fact, 95% of companies are needlessly leaking revenue, according to a recent report by revenue management software company Model N.
Jumpstarting the New Normal
The current market has been marked by heightened price sensitivity as demand fluctuates. On one side, channel partners may ask to renegotiate contracts or add surcharges to meet unexpected conditions. Elsewhere on the value chain, enterprises are offering rebates and incentives to manage demand, move excess capacity, and stabilize the supply chain. These strategies align with best practices for long-term customer retention and brand reputation, with B2B manufacturers adopting techniques like 90-day rebates or time-based incentives to facilitate sales of channel products.
Such rebate and discount programs enable enterprises to explore unbundled or one-time offerings while emphasizing value and flexibility. Though a sound and proven strategy, such programs pose unique challenges for global enterprises overseeing multiple, geographically distributed channel partners that generate between $250 million to more than $5 billion in annual revenue. Model N’s report additionally found that 76% of these C-suite executives have experienced a 10-times exponential rise in the amount of revenue-based data that required oversight and strategic planning in the past five years.
Marketing and sales teams can quickly launch a diverse portfolio of rebate programs. However, to be successful—and to confirm that these incentive programs align with the enterprises’ strategic goals—finance teams urgently need real-time visibility into program quotes, contracts, transactions, earnings, and payments data.
However, enterprises typically manage revenue streams with manual, paper-based or siloed solutions such as Excel spreadsheets. Nearly every company surveyed (98%) by Model N reported decision-making challenges with revenue management, citing such problems as variable pricing between regions, industries, channels, and types of customers, with most companies experiencing revenue leakage that could be easily solved with better oversight.
Given the potential flood of incentive programs to trigger a post-crisis demand spike, manufacturers need to solve for revenue leakage caused by duplicate rebates or discounts, rebate overpayments, upfront discounts, and misaligned incentive programs. At present, the report also revealed that 37% of executives said managing rebates/incentives present a huge revenue management challenge, with 47% stating revenue leakage issues come from giving higher discounts than needed to close deals and another 31% saying that leaks come from duplicate rebates or discounts.
The ability to manage end-to-end rebate processes from program definition through payment generation cannot be accomplished without process automation and digitalization tools, such as cloud-based data storage, computational prowess and support, and personalized dashboards that highlight data trends and real-time analytics. Manual processes hold back financial experts from analyzing data from global incentive programs, quickly locate top performers, rapidly tailor programs based on changing volume commitments or business needs, and manage incoming data from hundreds of channel partners at the speed and scale required.
While most enterprises have digitalized their CRM and ERP processes, what’s needed for agile revenue management is a software platform that bridges these two aspects of resource planning and customer outreach. The global market forecast for revenue management tools is expected to become a $22 billion market by 2024 as data mining and smart pricing algorithms are integrated throughout modern systems to optimize competitive pricing strategies.
Active “waterfall management” is the path to an ideal state empowering high tech firms to manage each waterfall component as a single platform and single continuum. Capable of reducing leakage by up to 5%, active waterfall management integrates data from the entire partner and reseller ecosystem, providing a single source of truth about rebates and incentives.
A proactive, software-driven waterfall management strategy provides timely and accurate channel data, helping companies benefit from a deeper understanding of channel and distributor interactions by “connecting the dots” between channel data management (CDM), rebate management, and market development funds (MDF) management. Automation plays a key role, eliminating manual processes to deliver faster rebate and payment calculations for more efficient oversight of incentive programs and avoidance of overpayments, which is particularly important as sales volume scales up.
Self-service portals further reduce workload, and today’s agile systems can simultaneously manage hundreds of partners and contracts, actively implementing pricing and discount controls, configuring and managing complex rebate types without customization, and tracking rebate and incentive details that result in real dollars won or lost.
With the world’s leading economists predicting a lengthy economic downturn, enterprises that take steps to improve financial results and richer valuations will be better positioned to navigate a volatile market to a brighter future.