Creative sales incentives are the bread and butter of manufacturing and technology companies. Typically, the more attractive the incentives, the more shipments will be driven through the channel, and the more revenue the company will collect. But while such incentives have helped many companies grow, they also pose serious risks to revenue when managed improperly.
Gartner estimates that inefficient revenue processes can cost companies 1 to 2 percent of gross revenue, which can add up to billions of dollars every year. Consider, for example, Apple and Samsung, the top two smartphone manufacturers, and what they might stand to lose if revenue is not managed properly.
For its fiscal first quarter for 2013, Apple reported revenues of $54.5 billion. Samsung’s quarterly revenue totaled $52 billion for the fourth quarter of 2012. The Gartner estimate of 2 percent would equal quarterly revenue exposure of $1 billion for both companies if they were inefficiently managing revenue processes.
Revenue leakage starts with the manufacturing process, which involves a complex web of agreements and transactions between manufacturers, license owners, patent owners, distributors, retailers and consumers. To show the many points in the process where money can slip through the cracks, Revitas recently published an infographic to illustrate the complex supply chain processes of smartphone manufacturing and distribution. Let’s take a look at some of the causes we uncovered and how your company can improve its revenue management approach.
How small revenue leaks add up to billions
Manufacturing and technology companies set up rebates, chargebacks, and brand promotions to reward partners, distributors, and retailers. But the sales incentives that are so crucial to staying competitive and growing a business can also limit revenue given the complexity of the supply chain and the methods used to manage incentives.
In the example of smartphones, such incentives would encourage performance in the numerous manufacturers that contribute the phone’s components, as well as scores of distributors and retailers responsible for moving the product. In addition to the number of partners, companies need to keep track of a variety of performance milestones, including sales volume, product mix sold, and percent of floor space. Every incentive and every link of the supply chain creates potential exposure.
Worse than this complexity is the way that many organizations manage it. ERP systems aren’t equipped to handle this web of partners and milestones, so many companies turn to spreadsheets and other manual processes to track agreements, incentive programs, and contract compliance. But manually managing such processes merely compounds the potential for error and lost revenue.
Why manual revenue management doesn’t cut it
Spreadsheets can provoke miscommunication, inefficiency, and delays, yet 64 percent of businesses still rely on spreadsheets or other manual solutions to manage their finance functions. As spreadsheets fill up with data on partners, incentives, goods sold, and revenue earned, they become increasingly difficult to navigate, and because users have little visibility into how spreadsheets are used or edited, they can never be certain they’re using the most current version. Such discrepancies increase the likelihood that these spreadsheets contain errors.
In fact, more than 90 percent of corporate spreadsheets contain material errors, which typically crop up as users struggle to keep pace with incentive program activity, especially when dealing with complex performance triggers and the volumes of data that must be entered to execute calculations and payments. Using such error-prone spreadsheets to track incentives can result in overpayments and duplicate payments that chip away at your company’s bottom line, as well as underpayments that can strain partnerships.
Automated solutions, however, track milestones for rebates, chargebacks, and other promotions, and then execute payments accurately and on time. While your company’s revenue exposure might not be billions of dollars a year like Apple and Samsung’s could potentially be, automated solutions can fill the gaps left by your ERP system and help your business retain more revenue, continue growth, and stay competitive.
For more information and to follow the smartphone money trail to see where the money goes and how it gets lost along the way, take a look at the infographic.
About The Author
Michael Kerman is the Director of Industry Development at Revitas, a provider of integrated Enterprise Revenue Dynamic (ERD) solutions for contracts, pricing, and compliance that drive higher profitability and lower risk. Michael is responsible for working with the marketing, development and sales functions to bring Revitas solutions to leading manufacturing and technology clients. He has more than 20 years of building and commercializing software, hardware and service solutions that enable Fortune 1000 organizations to achieve greater shareholder value. Michael has held senior-level positions in Product Management, Operations, Corporate and Field Marketing and Sales at CDI Corporation, SAP, Overland Storage, Computer Associates and Symantec. He is also a blogger for The Revitas Blog at http://blog.revitasinc.com.