When it comes to sales compensation, revenue assurance makes life difficult for those who might consider keeping some of the extra money that can come from overstated commissions. A well-functioning revenue assurance team plays two roles – as the guardians of financial integrity, and as the architects of revenue optimisation. Ideally, your revenue assurance team doesn’t just review and accept changes to your KPIs. They also play a role in selecting and prioritising those KPIs. Are the KPIs you are using mirroring the things that your organisation is prioritising, and are those priorities changing incentives for the right behaviours? Below are some detailed strategies for selecting and prioritising KPIs. Each strategy is followed by a real-world example and an FAQ that elaborates on the subject.
Table of Contents
1.Holistic Understanding of Organizational Priorities:
2.Aligning KPIs with Sales Strategy:
3.Balancing Leading and Lagging Indicators:
4.Emphasizing Quality Over Quantity:
5.Continuous Evaluation and Iteration:
Frequently asked Questions (FAQs):
Q1: How can RA teams keep KPIs relevant in the face of rapidly changing markets?
Q2: Can you explain whether data analytics helps with the selection of KPIs and in monitoring revenue assurance?
Q3: How can revenue assurance teams foster cross-functional collaboration in KPI selection?
Q4: What metrics should be in place to evaluate revenue integrity and stop revenue leakage?
Q5: How can revenue assurance teams measure the effectiveness of revenue optimization initiatives?
1.Holistic Understanding of Organizational Priorities:
Good KPI selection begins with detailed understanding of what the organisation values: revenue-assurance teams must be in lockstep with organisational strategy – whether that revolves around revenue growth, market expansion, customer retention or cost reduction.
Illustration: As an organisation expands into new markets, a software-as-a-service (SaaS) company attempting to penetrate the market might find that its key organisational priorities are now the rate of market penetration and customer adoption of the product. Examples of corresponding KPIs in this domain could include the market penetration rate, cost of acquiring customers (CAC) and rate of product trials-to-subscriptions.
2.Aligning KPIs with Sales Strategy:
To do this, KPIs need to be fully integrated with the sales strategy by referencing back to it, making them ‘compasses’ for a sales team. By achieving this sort of alignment, every sales effort will be in line with the strategic objectives, increasing the possibility that everyone can work together in a co-ordinated way rather than clashing over misaligned objectives.
For example, long-term relationships with clients in B2B services companies tend to be more important than in either B2C services companies or manufacturing businesses, which have shorter and more repetitive customer buying cycles. Similarly, B2B services companies can develop KPIs that reflect the value of building customer loyalty and maintaining long-term relationships. The KPIs for sales reps (such as customer lifetime value [CLV] and customer satisfaction score [CSAT] in our example) would favour building and maintaining good relationships with your customers.
3.Balancing Leading and Lagging Indicators:
A number of leading indicators should be matched with lagging ones This ensures that we have not only retrospective perspectives of past performance to clarify what’s stuck, but we also get early warning signals of what future revenues are headed towards – so that we can take proactive action to improve results.
Example: Revenue renewal rate in a subscription-based business model is a lagging indicator, reflecting historical revenue performance, whereas a customer engagement metric, a churn propensity score, or a product utilisation rate are leading indicators that can be used to predict future revenue streams, with the objective of bringing in the revenue through sales effort.
4.Emphasizing Quality Over Quantity:
The ever-present temptation to track excessively large numbers of KPIs produces pure information noise and dilutes focus. Revenue assurance should focus on only a small number of really high-impact KPIs that are closely linked to organisational goals and outcomes.
For instance, a manufacturing firm seeking to maximise revenue through price management can keep a sharp eye on ‘average order value’ (AOV), price elasticity of demand, and revenue per customer segment. Such a company can choose to increase or decrease prices accordingly to ensure value delivery is maximised while enabling the business to retain profits.
5.Continuous Evaluation and Iteration:
KPI selection is not a once-off process, but is a constant cycle of review and revision. Revenue assurance teams must periodically review KPI performance to adapt their metrics, and solicit feedback from business stakeholders as market dynamics change.
Example: the retail chain is looking at the portfolio of KPIs of revenue on a quarterly basis, in order assess underlying trends and improvements as the seasonal movement, campaigns and competitive pressures are impacting customer behaviour. Earning regular feedback from field sales teams and external market insight, they adapt and optimise their KPI portfolio, in order to guarantee a sustained revenue growth.
Frequently asked Questions (FAQs):
Q1: How can revenue assurance teams move KPIs forward in an ever-changing marketplace?
A1. Informed by real-time market and competitor developments – as well as changes in customer trends – KPIs can be tuned to reflect shifting priorities and identify new revenue opportunities.
Q2: If we are to believe the recent application of Big Data analytics, how would you explain the curve?
A2: Analytics helps revenue assurance teams through powerful analytical tools and predictive methods that identify drivers of revenue, identify outliers, and model KPIs in real time.
Q3: How can revenue assurance teams foster cross-functional collaboration in KPI selection?
A3: Creating working committees that include individuals from marketing, finance, sales and operations – all of whom have a hand in RA – will enable the RA team to align everyone around holistic and effective KPIs, creating a greater sense of the team’s work, a culture of openness, and a collective sense of ownership of the business’s revenues.
Q4: What are the appropriate metrics (likely a spectrum) to work with regarding revenue integrity and minimising revenue leak?
A4: Typical metrics could be contract renewal rate, correctly billed amount of revenue recognised in a given period, revenue loss due to incorrect billing, timely payment collection rate, revenue recoverable from lost customers (also known as revenue churn), whether billing has been done in accordance with the revenue standards, etc, as appropriate to the nature of the business and the industry.
Q5: How can revenue assurance teams measure the effectiveness of revenue optimization initiatives?
A5: With KPIs for revenue yield, profit margins, customer lifetime value and market share as their metrics, revenue assurance teams can track the impact of revenue optimisation for better performance, especially for revenue growth. If organisations want their revenue assurance to be excellent, then the RA team needs to support choosing and prioritising KPIs that accurately reflect organisational priorities, driving the right behaviours in sales. Know your organisational objectives. Structure KPIs around sales strategy. Balance leading versus lagging measures. Importance quality over quantity. Continuously improve by trial and error Drive revenue excellence. Remember, selecting the right KPIs is not about numbers; it’s about empowering a team to make decisions that lead to a revenue-maximising performance.
