It is the end of April and we are 1/3 of the way through calendar 2018. By now your CFO is relatively certain of two things:
- Will the business finish out the year by achieving the annual budget?
- Will the service business finish out the year by achieving the annual budget?
Also, no matter how she answers these two questions, both the CEO and CFO will come back at you for more revenue and profit in the second half of the year. This ask is as predictable as tides. And, like tides, year over year the amount get higher!
You should be getting ready to spend weeks traveling up, down, and through the following flow chart:
Getting to the place where you cannot only meet your budget but also exceed it is not easy. So, here is a list of 14 major opportunities and some actions to take to ensure your long-term success.
- Make sure you are selling enough. That means not only meeting budget but capturing all the revenue that is on the table while still creating very satisfied customers. This requires focusing on two things;
- Maximize the number of contracts sold. You must have the backing of Marketing, Sales, and your own team. This recent post tells you what to do.
- Maximize your renewal rate. You do this by consistently meeting or exceeding your commitments and also starting the renewal process well before the contract expires. To get more insights read this post.
- Make sure you are properly charging for the value you create for your customers. Start by looking at how your team sells your contracts and other services and figure out how to monetize the benefits flowing to the buyer. Read more here. Also, make sure you are only offering a discount when your company gets something valuable in return and that discounts have to be approved by you or your designated substitute. Remember, you are responsible for your revenue and profit.
- Ensure that your contracts include all the attributes that your customers see as valuable. Then charge the right amount. Read this and this.
- Minimize and then eliminate revenue leakage. This is not billing the customer for services or products supplied. While we all believe our organization is better that this and has no revenue leakage, we are potential victims. Here are the primary causes:
- Failing to invoice for all services, expenses, and parts consumed during the service event. For example, you may charge of technical support or remote diagnostics but the inside personnel fail to enter the data that will generate and invoice. This could be because of a human error like time pressure, or because they sometime decide the customer deserves a “break.” That is OK as long as they are following your rules or guidelines.
- Too many contracts being managed by too few people causes selling and/or booking contracts to be skipped.
- Your computer system may not be accurate or complete. Maybe because of volume or maybe because of having the wrong people assigned to this critical job.
- Your contract may have sold at the time of product sale and been contingent on warranty completion, which never got recorded.
- You renew a contract for a new configuration product or multiple products but your contract management systems is not updated.
- Believe it or not, sometimes invoices are not sent!
- Sometimes payment terms are vague or unclear, the customer does not pay, and no one in your company follows up.
- If you sell very complex, or non-standard, contracts then you are setting yourself up for revenue leakage. If your contract management system is not suited for these situations, you can be losing between 1% and 5% of your revenue annually.
- According to K.C. Associates, in the Analytical and Life Sciences industries, nearly 50% of all service is completed by someone other than the manufacturer (3rd party or end user.) And 72% of imaging equipkment is serviced by the manufacturer. What is your experience?
And finally the great news.
The revenue gained from eliminating leakage often has little or no Cost of Goods Sold associated with it, so it can have an outsized impact on margin and profitability, not just revenue.
To learn more about Revenue Leakage read this.
Good luck in your budget reviews with your CEO and CFO!
I would love to talk with you about this. Feel free to reach out.