Marginal Improvement: Francis Ruffy Gives Advice on How to Avoid Revenue Leakage
3 min read
Faced with soaring inflation, companies are doing all they can to maximize revenue. In a recent interview, Conga’s Chief Marketing Officer, Randy Littleson, sat down with Francis Ruffy, principal at PricewaterhouseCoopers, to talk about improving margins, preventing revenue leakage, and applying smart contracting strategies in this challenging environment. Following are some key takeaways from their discussion.
Four approaches to maximizing revenue
Randy: As you talk with clients, I’m sure a lot of them are concerned about rising inflation. What are they doing to maximize revenue in that climate?
Francis responds, “Inflation is definitely heating up, not cooling down. We’re currently at 9.1% year-over-year, and it seems to be more broad-based and widespread than is typical. The companies I work with are trying a lot of tactics and pulling different levers to outperform the market, improve efficiency, and become more effective at creating value.”
He shares the following list of four common approaches to maximizing revenue in the face of inflationary pressures:
- Price increases. A lot of companies have taken some price actions in the last two years, including a shift from annual price increases to more frequent adjustments.
- Pricing preservation. In addition to setting up the processes and systems to go after higher prices, companies are now looking for ways to hold onto higher prices as the economy softens.
- Cost takeout programs. Companies are looking to increase efficiencies in both the front and back office, in order to reduce unnecessary costs and expenditures as much as possible.
- Applying automation. Many organizations are applying new technologies such as RPA (robot process automation), workflow automation, and intelligent document processing.
Tactics for improving margins and cutting costs
Randy: You talked about margin improvement and cutting costs. What are some of the most effective tactics for this initiative?
“Frankly, every company would benefit from focusing on margin improvement” Francis replies. “Different stakeholders, from finance and accounting to sales, can all contribute to improving the bottom line.”
He continues, “Think about all the deductions that go into your gross vs net sales—including administration fees, rebates, royalty payments, chargebacks, billbacks, distributor fees, and more. This represents a major part of the value chain, typically somewhere between 20% and 50%.”
As Francis explains it, being proactive in monitoring these gross to net deductions is a sure way to improve your company's margin. Companies that take proactive steps to leverage data for margin improvement also gain key insights, allowing them to answer questions like:
- Are my rebates performing as forecast?
- Am I getting the expected ROI from paying these rebates?
- Are my customers hitting their volume-based tiers on the contracts that include rebates?
Short-term solutions to revenue leakage
Randy: Revenue leakage is a hot-button issue right now. What are some approaches companies can take, especially in the short term, to address revenue leakage?
Francis answers, “I think the term ‘revenue leakage’ really resonates with companies, because it implies there are aspects of the problem that are within their control to address and manage. And it’s not an insignificant amount. I think the latest stats I saw indicate there’s potentially 1-3% revenue leakage on rebates alone. So if I’m paying monthly, quarterly, and annual rebates—plus associated fees—that could easily add up to millions of dollars annually.”
He explains that if you’re overpaying rebates, the impact is more than just the rebate payments themselves. Downstream incentives are also affected, including sales incentives and advances that are based on net sales. In addition, the accuracy of rebate accruals and forecasting is diminished.
Francis concludes, “In the short term, the most important thing is getting the foundation right. Focus on things like data governance, data quality, communication, and process harmonization across different stakeholder groups. These efforts can help companies improve accuracy and plug their potential revenue leakage.”
Smart contracting strategies
Randy: What should companies be thinking about in terms of contracting strategies throughout the revenue lifecycle?
“My advice is to keep it simple. Just stick with the basics,” Francis says. “Focus on the capabilities that allow you to track contracts that are up for renewal. Make sure you’re getting alerts when contracts renew in the next 30, 60, or 90 days, so you can choose the most appropriate contracting strategy.”
For example, if a customer is on the fence about renewing their contract, you might reach out sooner than the typical 30-day renewal notice. For customers with a high likelihood of renewing, you might look for opportunities to upsell or cross-sell additional products or services.
He continues, “For active contracts, be aware of terms that can be leveraged to optimize your revenue. Maybe there are terms that allow you to take price increases based on some consumer price index, producer price index, or reference price. The takeaway is that continuous, consistent contract reviews will help you manage and maximize revenue.”
To learn more and get first-hand insights, watch the full video with Conga CMO Randy Littleson and PwC principal Francis Ruffy.
This blog post is an abbreviated version of the video that's been condensed and edited for readability.