Have you ever met a stranger on a long-distance flight, and spent a couple hours together, sharing life stories and philosophies?  Then, at the end, as you get up to leave the plane, you realise you never even asked each other’s names.   

This is somewhat like my experience with a discipline that I now know is called Revenue Management.  It had its origins in the Airline industry, and is used in many others like Hospitality, B2B SaaS etc.   

As far as I know, the model I was introduced to, had its origins in Customer Lifecycle Management (CLM) in a large international Telecoms group.  However, I think it is much more than that.  When reading definitions of Revenue Management across multiple industries, a few core characteristics stood out: 

1. The foundation is ongoing, disciplined analytics processes.
2. It considers internal and external data sources.
3. It is based on an understanding of customer needs, behaviour and demand by product, by channel at minimum.  
4. It optimizes pricing, packaging, and promotion by channel by product.
5. It leverages trade marketing.
6. It considers granular optimisations throughout the customer lifecycle.

Considering the above, in my conclusion, the name for the rigorous process we followed was indeed Revenue Management.

So, where did I first encounter Revenue Management? 

Rewind to 2017, I am working at a large multi-national telecoms company.  Despite outward success, the insiders know it had been a tough couple of years.  But not all engines of the business were firing at full strength.  As it goes in such instances, couple of heavy weight executives from outside the company were appointed. 

With them, these executives had brought a new way of business reporting.  I was working in the Strategy, Business Planning and Intelligence department at the time.  It became our task to distil the requirements ensuring our monthly reporting reflected additional granularity. 

The methodology considered the overall revenue generated by the business in four parts: New customers (Inflow), Existing customers (Base), Re-contracting customers (Retention) and Churned customers (Outflow).  The acronym used was IBRO.  The simplicity of it was almost maddening.  But it was so very illuminating, especially since reporting on the volume side of these dimensions where really nothing new.

A few months later I was appointed as the General Manager of the Postpaid Business – managing a subscriber base of about 2 million and annual service revenue of around $300 million at the time. 

Remember I mentioned that, in 2017, not all engines were firing as they should have?  This business unit was one of them.  It had been in underperforming for a while, and in 2017, the dedicated turnaround work was underway. 

So, newly appointed five months into the year, there was still a big turnaround job to be done.  I was a bit overwhelmed, notwithstanding great mentorship and a small but mighty team of warriors with me.  I desperately needed a framework to structure how we would systematically make this happen.   

Reporting for this business unit was somewhat of a blank slate within my control.  With my analytics background, I dedicated evenings and weekends to deep dive into the data using the IBRO framework. 

With the help of data analysts and a committed cross-functional team, we finally defined baseline data sets that met our needs.

Our monthly Revenue Management cadence.

Ultimately, driving revenue growth in a subscription business requires 3 things:

1. Revenue gained from new customers need to exceed the lost revenue represented by churned customers.
2. Ensure overall revenue retention when customers are re-contracting.
3. Grow revenue among your in-life customers through up- and cross selling.

So how did we manage our Revenue performance through IBRO?

Business planning and forecasting

Early on, we had a rudimentary model for the net revenue contribution required from the ‘Inflow minus Outflow’ part of the equation. This was forecasted over a 12-month period.

We had a similar model on the value of re-contracting customer cohorts for the next 12 months.  Here we also had corresponding targets for net incremental revenue gained from these cohorts. 

Lastly, we had a view on the revenue contribution from the existing base.  Here we also had indicative targets for net incremental revenue required from up- and cross selling campaigns. 

The business plan had also outlined our strategic and operational activities addressing each of the areas.

Monthly reporting

Armed with clarity as to what it will take to make the overall revenue growth target, we tracked this on a monthly basis.  In each area we considered the sensitivity of the volume-value ratio that was driving the revenue.  We reported by product portfolio by channel, considering the specific product and usage mix driving the performance.

Take action for opportunity and risk areas

Every month, we assessed the overall revenue health, and revenue mix to identify challenges and opportunities.  A core part was also understanding impact of specific strategic and operational activities that had been taken to market. 

This informed whether we needed new interventions, or how we scale existing interventions and / or channels and operational policies.

Rinse and repeat

This became the backbone of our review and execution cadence.  Of course, every month different deep dives would be required. We adjusted to the competition and at times we uncovered unwelcome unintended consequences of some of our historical actions.  But the reality is that the cadence gave us visibility and clarity as to where we should deploy our tactics.  More importantly it provided a structured and focused feedback loop on the effectiveness, maintaining our focus on the revenue goals.   

Business challenges addressed with Revenue Management:

Initially it was quite daunting, but I fell in love with this framework.  Revenue Management addresses these problem statements particularly well:

• Flat or declining revenue performance, and you are unsure how to improve it.
• Customers are only buying your entry-level, lowest margin products or services.
• You are losing more customers every month than what you are gaining.
• Your existing customers are spending less and less money with you.

I believe business of all sizes can benefit Revenue Management.  The level of analytical and predictive rigor will of course be guided by the specific business reality.  

Connect with me for a free consultation if you need the help of an experienced Business and Marketing Strategist to guide you through the journey of Revenue Management.