IDC Spotlight on Margin Management's Role in Revenue and Profit Optimization
Revenue and profit optimization strategies are essential for businesses to navigate complex pricing, trade, and incentive programs. Effective management of these processes ensures growth by aligning pricing with sales, marketing, and finance, protecting margins, and minimizing revenue leakage. Intelligent automation and data-driven insights enhance decision-making and operational efficiency. Descărcați documentulSPOTLIGHT
Sponsored by: SAP
Margin Management's Role in Revenue and
Profit Optimization
November 2024
Written by: Frank Della Rosa, Research Vice President, SaaS, Business Platforms, and Industry Cloud
Introduction
Professionals engaged in revenue and margin optimization strategies face
mounting complexity when overseeing activities across multiple physical
and digital channels. Navigating intricate pricing, trade, royalty, and
incentive programs is a significant challenge. Enterprise go-to-market
(GTM) life-cycle management, a comprehensive set of processes for
launching a new product and delivering commercial excellence for existing
products, is crucial to ensure that the time invested and the money spent
or earned drive growth. There's increasing pressure to optimize revenue
across channels, protect margins, and minimize leakage. Aligning pricing
with sales, marketing, and finance is important when adapting to market
trends and business needs.
While much of the focus is on revenue life-cycle management and the
purpose-built platforms designed to address the challenges stemming
from siloed systems and disconnected data, the crucial role of revenue and margin management is often overlooked or
underrepresented. These activities cover everything a company processes in the gross-to-net workflow, including market
development funds (MDF), chargebacks, commissions, pricing, promotions, rebates, administration and/or distributor
fees, and royalties — virtually all the monies exchanged between partners on both the buy and sell side in the supply
chain outside the purchase order.
There are numerous factors to consider in an end-to-end margin management workflow. Most platforms focus on
activities related to the cost of production or the cost of goods sold. This may suffice for simple go-to-market business
models driven by cost and price alone. However, most industries are evolving to more complex revenue programs that
attempt to intelligently drive channel partners to perform better with the expectation that trade-offs on margin should
yield higher volumes and overall profits.
This IDC Spotlight focuses on revenue and margin management, a segment of revenue
life-cycle management that many businesses grapple with and most supply chain
partners fail to address fully in platform solutions.
KEY STATS
According to IDC's 2024 SaaSPath Global
Buyer Survey, organizations need greater
visibility into the revenue life-cycle and
margin management workflows and to
apply intelligent automation for scale and
velocity. Furthermore:
» 24.8% of survey respondents said there is
not enough automation — too many
touch points.
» 41.6% wanted better customer and
product insights driven by AI.
» 40% sought price optimization features for
pricing personalization.
AT A GLANCE
Sponsored by: SAP
Margin Management's Role in Revenue and
Profit Optimization
November 2024
Written by: Frank Della Rosa, Research Vice President, SaaS, Business Platforms, and Industry Cloud
Introduction
Professionals engaged in revenue and margin optimization strategies face
mounting complexity when overseeing activities across multiple physical
and digital channels. Navigating intricate pricing, trade, royalty, and
incentive programs is a significant challenge. Enterprise go-to-market
(GTM) life-cycle management, a comprehensive set of processes for
launching a new product and delivering commercial excellence for existing
products, is crucial to ensure that the time invested and the money spent
or earned drive growth. There's increasing pressure to optimize revenue
across channels, protect margins, and minimize leakage. Aligning pricing
with sales, marketing, and finance is important when adapting to market
trends and business needs.
While much of the focus is on revenue life-cycle management and the
purpose-built platforms designed to address the challenges stemming
from siloed systems and disconnected data, the crucial role of revenue and margin management is often overlooked or
underrepresented. These activities cover everything a company processes in the gross-to-net workflow, including market
development funds (MDF), chargebacks, commissions, pricing, promotions, rebates, administration and/or distributor
fees, and royalties — virtually all the monies exchanged between partners on both the buy and sell side in the supply
chain outside the purchase order.
There are numerous factors to consider in an end-to-end margin management workflow. Most platforms focus on
activities related to the cost of production or the cost of goods sold. This may suffice for simple go-to-market business
models driven by cost and price alone. However, most industries are evolving to more complex revenue programs that
attempt to intelligently drive channel partners to perform better with the expectation that trade-offs on margin should
yield higher volumes and overall profits.
This IDC Spotlight focuses on revenue and margin management, a segment of revenue
life-cycle management that many businesses grapple with and most supply chain
partners fail to address fully in platform solutions.
KEY STATS
According to IDC's 2024 SaaSPath Global
Buyer Survey, organizations need greater
visibility into the revenue life-cycle and
margin management workflows and to
apply intelligent automation for scale and
velocity. Furthermore:
» 24.8% of survey respondents said there is
not enough automation — too many
touch points.
» 41.6% wanted better customer and
product insights driven by AI.
» 40% sought price optimization features for
pricing personalization.
AT A GLANCE
Page 2#US52605624
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
For many businesses, spreadsheets have been the primary means of managing the complexities associated with revenue
and margin optimization. Buyers seek more intelligent automation to reduce complexity and improve outcomes as
enterprises invest in transforming the revenue optimization process. According to IDC's 2024 SaaSPath Global Buyer
Survey, 24.8% of businesses cite the need for more automation to better manage the revenue life cycle.
Background
Many enterprises have modernized primary business processes. However, some revenue-related activities, including
pricing, rebates, chargebacks, and trade promotions, continue to be managed with spreadsheets and custom
applications, increasing risk and stifling data sharing. IDC research shows that 83% of CEOs want their organizations to be
more data driven. Enterprise GTM life-cycle management continuously evolves as customers' needs change and
businesses respond to mounting pressures to drive out inefficiencies. As a result, a holistic approach includes margin
management workflows that connect finance, engineering, product marketing, operations, sales, and customer success.
Notable challenges that businesses are investing in:
» Lengthy enterprise sales cycles that can take six-plus months to complete, delaying revenue realization
» Complex variable pricing and expanding product offerings
» Lack of visibility into and control over total costs
» Revenue leakage through inefficient or inaccurate processes
» Time-intensive and error-prone manual processes
» Ineffective targeting of B2B promotions leading to lower conversions
» Challenging product line gross-to-net modeling
The velocity of change and the need to adapt in real time magnify these challenges and render decisions less impactful if
they are not made in the moments that matter most. The implications of these actions or inactions ripple across the
business. Revenue and profit targets are missed, costs are up, and margins are down. Program effectiveness and ROI are
diminished, inventories are suboptimal, and customer acquisition cost and the cost of sales rise.
The Importance of Revenue and Margin Management
Revenue and margin management are pivotal in optimizing profitability across the product life cycle. Its integration in
B2B involves figuring out how to incentivize buyers beyond price, factoring in discounts, rebates, and other incentives. In
addition, it involves carefully monitoring and managing the cost of bringing a product to market while ensuring that the
pricing strategy aligns with the market's willingness to pay. Visibility into the margin management workflow reveals the
actual margin between the sale price and the net-net revenue after incentives are paid well after the sale.
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
For many businesses, spreadsheets have been the primary means of managing the complexities associated with revenue
and margin optimization. Buyers seek more intelligent automation to reduce complexity and improve outcomes as
enterprises invest in transforming the revenue optimization process. According to IDC's 2024 SaaSPath Global Buyer
Survey, 24.8% of businesses cite the need for more automation to better manage the revenue life cycle.
Background
Many enterprises have modernized primary business processes. However, some revenue-related activities, including
pricing, rebates, chargebacks, and trade promotions, continue to be managed with spreadsheets and custom
applications, increasing risk and stifling data sharing. IDC research shows that 83% of CEOs want their organizations to be
more data driven. Enterprise GTM life-cycle management continuously evolves as customers' needs change and
businesses respond to mounting pressures to drive out inefficiencies. As a result, a holistic approach includes margin
management workflows that connect finance, engineering, product marketing, operations, sales, and customer success.
Notable challenges that businesses are investing in:
» Lengthy enterprise sales cycles that can take six-plus months to complete, delaying revenue realization
» Complex variable pricing and expanding product offerings
» Lack of visibility into and control over total costs
» Revenue leakage through inefficient or inaccurate processes
» Time-intensive and error-prone manual processes
» Ineffective targeting of B2B promotions leading to lower conversions
» Challenging product line gross-to-net modeling
The velocity of change and the need to adapt in real time magnify these challenges and render decisions less impactful if
they are not made in the moments that matter most. The implications of these actions or inactions ripple across the
business. Revenue and profit targets are missed, costs are up, and margins are down. Program effectiveness and ROI are
diminished, inventories are suboptimal, and customer acquisition cost and the cost of sales rise.
The Importance of Revenue and Margin Management
Revenue and margin management are pivotal in optimizing profitability across the product life cycle. Its integration in
B2B involves figuring out how to incentivize buyers beyond price, factoring in discounts, rebates, and other incentives. In
addition, it involves carefully monitoring and managing the cost of bringing a product to market while ensuring that the
pricing strategy aligns with the market's willingness to pay. Visibility into the margin management workflow reveals the
actual margin between the sale price and the net-net revenue after incentives are paid well after the sale.
Page 3#US52605624
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
Essential elements of the margin management workflow:
» Buy- and sell-side management: On the sell side, solutions must reduce a seller's margin through discounts,
rebates, and reimbursements. These costs should be more than offset by increased sales volume, market share,
and profits. On the buy side, solutions must evaluate supplier offers and determine which offer best improves
margins by controlling acquisition costs and maximizing reimbursements.
» Pricing strategy: The focus here is on determining the optimal price point for an offering based on market analysis,
competitive intelligence, and buyers' perceived value.
» Cost analysis, cost recovery, and discrepancy: This set of activities identifies and manages all costs associated with
designing, manufacturing, and distributing the offering, including R&D, production, marketing, and sales expenses.
Surcharges include freight, credit, seasonal, regulatory, and convenience fees.
» Margin tracking, optimization, and financial settlement: These activities require continuously monitoring the
product's gross and net margins to ensure alignment with profitability goals as well as executing strategies to
improve margins, such as lowering costs and improving efficiency. Relating, amortizing, and applying general
incentive payments to specific sales transactions are vital for accurate margin analyses.
» Automation of labor-intensive tasks: Automation reduces human error, frees up talent for elevated work, and
allows for the analysis of program performance results for improved decision-making. Manual systems that are
extremely labor intensive, error prone, inflexible, and costly often result in missed revenue opportunities, revenue
leakage, poor visibility into pricing and net margins, and heightened compliance risks.
» Top-line and bottom-line performance: This involves taking control of multiple complex programs and maximizing
their performance to ensure these program investments deliver outstanding business and financial results.
The benefits of implementing a comprehensive margin management solution are transformative. By optimizing margins
and reducing costs, a business can increase overall profitability, gain market share or improve margins, and ensure the
company's long-term financial health. Effective revenue and margin management enables the business to price its
products competitively while sustaining healthy profit margins. Additional benefits of a full-featured solution include:
» Informed decision-making: Detailed margin data provides impactful insights that inform strategic decision-making
throughout the product life cycle. Examples include when to introduce new features, expand into adjacent
markets, or sunset underperforming products.
» Efficient resource allocation: Businesses can allocate resources and prioritize investments in products and
campaigns with the most significant return potential.
» Operational efficiencies: Automating mission-critical, yet highly dispersed, sell-side revenue management
programs and buy-side margin management programs increases operational efficiency. With integration into ERP
systems, businesses are empowered with complete visibility into revenue and cost drivers spanning different
corporate functions like finance, sales and marketing, supply chain, and HR, driving critical strategic decisions.
» Business goal alignment: This helps ensure the GTM strategy is aligned with overall business objectives, including
growth, volume, margins, market share, and customer retention. Organizations need a unified platform that
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
Essential elements of the margin management workflow:
» Buy- and sell-side management: On the sell side, solutions must reduce a seller's margin through discounts,
rebates, and reimbursements. These costs should be more than offset by increased sales volume, market share,
and profits. On the buy side, solutions must evaluate supplier offers and determine which offer best improves
margins by controlling acquisition costs and maximizing reimbursements.
» Pricing strategy: The focus here is on determining the optimal price point for an offering based on market analysis,
competitive intelligence, and buyers' perceived value.
» Cost analysis, cost recovery, and discrepancy: This set of activities identifies and manages all costs associated with
designing, manufacturing, and distributing the offering, including R&D, production, marketing, and sales expenses.
Surcharges include freight, credit, seasonal, regulatory, and convenience fees.
» Margin tracking, optimization, and financial settlement: These activities require continuously monitoring the
product's gross and net margins to ensure alignment with profitability goals as well as executing strategies to
improve margins, such as lowering costs and improving efficiency. Relating, amortizing, and applying general
incentive payments to specific sales transactions are vital for accurate margin analyses.
» Automation of labor-intensive tasks: Automation reduces human error, frees up talent for elevated work, and
allows for the analysis of program performance results for improved decision-making. Manual systems that are
extremely labor intensive, error prone, inflexible, and costly often result in missed revenue opportunities, revenue
leakage, poor visibility into pricing and net margins, and heightened compliance risks.
» Top-line and bottom-line performance: This involves taking control of multiple complex programs and maximizing
their performance to ensure these program investments deliver outstanding business and financial results.
The benefits of implementing a comprehensive margin management solution are transformative. By optimizing margins
and reducing costs, a business can increase overall profitability, gain market share or improve margins, and ensure the
company's long-term financial health. Effective revenue and margin management enables the business to price its
products competitively while sustaining healthy profit margins. Additional benefits of a full-featured solution include:
» Informed decision-making: Detailed margin data provides impactful insights that inform strategic decision-making
throughout the product life cycle. Examples include when to introduce new features, expand into adjacent
markets, or sunset underperforming products.
» Efficient resource allocation: Businesses can allocate resources and prioritize investments in products and
campaigns with the most significant return potential.
» Operational efficiencies: Automating mission-critical, yet highly dispersed, sell-side revenue management
programs and buy-side margin management programs increases operational efficiency. With integration into ERP
systems, businesses are empowered with complete visibility into revenue and cost drivers spanning different
corporate functions like finance, sales and marketing, supply chain, and HR, driving critical strategic decisions.
» Business goal alignment: This helps ensure the GTM strategy is aligned with overall business objectives, including
growth, volume, margins, market share, and customer retention. Organizations need a unified platform that
Page 4#US52605624
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
delivers a complete picture of their revenue and spend to enable faster, more informed decisions to improve
business outcomes.
Insight-Driven Decisioning and the Value of Purpose-Built Platforms
Data-driven insights are essential for revenue and margin management. They enable businesses to optimize purchase
costs and sales prices, improve operational efficiency, and adjust strategy in real time. Accurate and timely data is vital to
successful GTM and margin management execution. Data enables businesses to make informed decisions about market
entry, product positioning, pricing, and personalized promotions. Data-driven insights allow enterprises to adjust future
activities in response to unfolding situations, adapt to the fast tempo of cloud GTM, and measure profitability.
Solutions, in the form of intelligent platforms, streamline integration across disparate
systems, aggregate application and functional data, and use advanced analytics to
provide a 360-degree view of margin management. Businesses must embrace rapid
cycles of data-driven innovation and continuous improvement to redefine complex
processes and effectively manage pricing, trade, royalty, and incentive programs. These
platforms capture and feed critical market data (through claims and POS data
submissions) to drive a supplier's analyses and decisions. New forms of analytics
powered by advanced AI offer more efficient methods for examining data and
generating contextualized insights across product performance, competitors, buyers,
and supply chain partners.
Gathering all the required data in a single platform enables 360-degree visibility into revenue and spending activity,
offering a single source of truth for enterprise data, improving transparency, and streamlining the tracing of data origins
and transformations. According to IDC's Digital Platform Survey, 68% of respondents said that an underlying data
repository was extremely or very important in the company's decision to purchase a digital platform, and 67% indicated
that it is very important for the platform to include an intelligence layer.
A GTM platform streamlines execution and improves collaboration by acting as a single source of truth for all
stakeholders, addressing the need for better alignment between sales and marketing, product development, and
customer success. Most platforms include prebuilt workflows and intelligent automation capabilities explicitly optimized
for GTM and revenue life-cycle management processes, driving greater efficiency by reducing manual intervention and
ensuring greater consistency in execution across different activities. These advanced capabilities help mitigate risk by
eliminating human error and avoiding revenue leakage due to inefficient, overly complex legacy processes and missed
opportunities caused by poorly executed strategies. Using a purpose-built GTM platform removes the burden of building,
maintaining, and updating different tools. This allows the team to focus on high-value strategic activities.
Generative AI–Enhanced Platforms
Generative AI (GenAI) ushers in the next generation of highly personalized experiences based on customer preferences,
behavior, and past interactions. This form of advanced AI, when embedded in a purpose-built GTM platform, provides
significant advantages including:
» Hyper-personalization at scale to enhance customer engagement
» Greater efficiency achieved through automating time-consuming, manual tasks
Revenue and margin
management are
critical to operate,
grow, and succeed in
highly competitive and
complex business
environments.
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
delivers a complete picture of their revenue and spend to enable faster, more informed decisions to improve
business outcomes.
Insight-Driven Decisioning and the Value of Purpose-Built Platforms
Data-driven insights are essential for revenue and margin management. They enable businesses to optimize purchase
costs and sales prices, improve operational efficiency, and adjust strategy in real time. Accurate and timely data is vital to
successful GTM and margin management execution. Data enables businesses to make informed decisions about market
entry, product positioning, pricing, and personalized promotions. Data-driven insights allow enterprises to adjust future
activities in response to unfolding situations, adapt to the fast tempo of cloud GTM, and measure profitability.
Solutions, in the form of intelligent platforms, streamline integration across disparate
systems, aggregate application and functional data, and use advanced analytics to
provide a 360-degree view of margin management. Businesses must embrace rapid
cycles of data-driven innovation and continuous improvement to redefine complex
processes and effectively manage pricing, trade, royalty, and incentive programs. These
platforms capture and feed critical market data (through claims and POS data
submissions) to drive a supplier's analyses and decisions. New forms of analytics
powered by advanced AI offer more efficient methods for examining data and
generating contextualized insights across product performance, competitors, buyers,
and supply chain partners.
Gathering all the required data in a single platform enables 360-degree visibility into revenue and spending activity,
offering a single source of truth for enterprise data, improving transparency, and streamlining the tracing of data origins
and transformations. According to IDC's Digital Platform Survey, 68% of respondents said that an underlying data
repository was extremely or very important in the company's decision to purchase a digital platform, and 67% indicated
that it is very important for the platform to include an intelligence layer.
A GTM platform streamlines execution and improves collaboration by acting as a single source of truth for all
stakeholders, addressing the need for better alignment between sales and marketing, product development, and
customer success. Most platforms include prebuilt workflows and intelligent automation capabilities explicitly optimized
for GTM and revenue life-cycle management processes, driving greater efficiency by reducing manual intervention and
ensuring greater consistency in execution across different activities. These advanced capabilities help mitigate risk by
eliminating human error and avoiding revenue leakage due to inefficient, overly complex legacy processes and missed
opportunities caused by poorly executed strategies. Using a purpose-built GTM platform removes the burden of building,
maintaining, and updating different tools. This allows the team to focus on high-value strategic activities.
Generative AI–Enhanced Platforms
Generative AI (GenAI) ushers in the next generation of highly personalized experiences based on customer preferences,
behavior, and past interactions. This form of advanced AI, when embedded in a purpose-built GTM platform, provides
significant advantages including:
» Hyper-personalization at scale to enhance customer engagement
» Greater efficiency achieved through automating time-consuming, manual tasks
Revenue and margin
management are
critical to operate,
grow, and succeed in
highly competitive and
complex business
environments.
Page 5#US52605624
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
» Increased agility, allowing for real-time adjustments to changing market conditions and performance metrics
» Advanced analytics and predictive modeling to enable better decision-making
» Process automation for faster time to market
» Consistent messaging and branding across all GTM channels
» Enhanced capacity for experimentation and innovation
» Robust security and data protection
The many advantages of purpose-built platforms for executing a comprehensive GTM strategy, including revenue and
margin management, offer a radical departure from the traditional resource-intensive and disconnected approach to
creating, orchestrating, and implementing strategy. Enterprises should engage stakeholders from across the business, as
well as customers and ecosystem partners, to collaborate on a business case that captures the total economic impact of
implementing a comprehensive GTM and margin management platform.
Benefits
Benefits derived from a purpose-built platform for executing a comprehensive revenue and margin management
strategy:
» Transparency: Platforms are designed to provide 360-degree visibility into revenue and spending activity,
eliminating costly, error-prone, and voluminous data transfers while also offering a single source of truth for
enterprise data.
» Auditability and traceability: Every financial posting needs to be auditable, providing an indelible statement of
record for millions of transactions and billions of dollars.
» Increased profitability: An approach that prioritizes profit margins and helps businesses identify opportunities to
raise prices or reduce costs without compromising sales can improve profits.
» Enhanced pricing, trade, royalties, and incentive strategies: Advanced data analytics can help produce insights
into margin drivers.
» Improved data quality: Integration from different sources, including ERP, spreadsheets, and other data
repositories, means dealing with data that is inconsistent. These cannot facilitate complex or comprehensive GTM
and margin management needs. Operational decisions require detailed, integrated, and real-time visibility into
strategic priorities.
SPOTLIGHT Margin Management's Role in Revenue and Margin Optimization
» Increased agility, allowing for real-time adjustments to changing market conditions and performance metrics
» Advanced analytics and predictive modeling to enable better decision-making
» Process automation for faster time to market
» Consistent messaging and branding across all GTM channels
» Enhanced capacity for experimentation and innovation
» Robust security and data protection
The many advantages of purpose-built platforms for executing a comprehensive GTM strategy, including revenue and
margin management, offer a radical departure from the traditional resource-intensive and disconnected approach to
creating, orchestrating, and implementing strategy. Enterprises should engage stakeholders from across the business, as
well as customers and ecosystem partners, to collaborate on a business case that captures the total economic impact of
implementing a comprehensive GTM and margin management platform.
Benefits
Benefits derived from a purpose-built platform for executing a comprehensive revenue and margin management
strategy:
» Transparency: Platforms are designed to provide 360-degree visibility into revenue and spending activity,
eliminating costly, error-prone, and voluminous data transfers while also offering a single source of truth for
enterprise data.
» Auditability and traceability: Every financial posting needs to be auditable, providing an indelible statement of
record for millions of transactions and billions of dollars.
» Increased profitability: An approach that prioritizes profit margins and helps businesses identify opportunities to
raise prices or reduce costs without compromising sales can improve profits.
» Enhanced pricing, trade, royalties, and incentive strategies: Advanced data analytics can help produce insights
into margin drivers.
» Improved data quality: Integration from different sources, including ERP, spreadsheets, and other data
repositories, means dealing with data that is inconsistent. These cannot facilitate complex or comprehensive GTM
and margin management needs. Operational decisions require detailed, integrated, and real-time visibility into
strategic priorities.