Serial Entrepreneur Zack Rinat on ModelN (Part 6)
Check other articles in the series...SM: Please explain the vision and value proposition at ModelN in some more depth.
ZR: If you think about an income statement, you can relate to what we are doing. With Technology, our industry automates the GNA via the general ledger and finance. We automate marketing. We integrate with CRM. We automate cost of goods via the call center, manufacturing, and so on.
The income statement remains the last uncharted territory to automate. When we speak about revenues we speak about a simple equation. It is the price multiplied by the volume minus the financial settlements. Companies are giving money back to their customers in the form of rebates, as incentives to the channels in terms of chargeback’s, etc. We do a study every year with our customers and we look at best practices of revenue management, and how they put together pricing, contracts and financial settlements.
We have found that 80% of the people in the industry say they are going to have higher volume of revenues, in terms of percentage, coming in the form of contracts and they are going to be more complicated. Only 50% of them trace customer compliance. 54% of them say they give discounts on expired contracts. Almost two thirds of them, 64%, say that pricing visibility in the enterprise is a challenge. A marketeer will change the price but the operational systems are not going to know about it and the sales people still have a price book which is outdated. Over half, 55%, say they hold their prices in spreadsheets.
These companies have two issues. The first one is with revenue linkage. There are revenues they could recognize but they fail to do so. They gave a discount to a sales organization but they have no way to enforce it. Another example would be them selling a product to a customer and paying the customer a rebate, even though the customer had returned the product after the sale. Here the customer made money on the transaction.
Another scenario would be that under a contract, a company has the right to increase prices every year between 1-3% depending on the CPI index, but the contracts are in the file drawers and the connection is lost.
To sum it up, the first issue is that companies leave a lot of money on the table.
The second issue is in terms of compliance. Compliance is a big word. We speak about price compliance, volume compliance, customer compliance and process compliance. If the price is changed in the ERP, then I should be able to see who changed it, why they changed it, and see the documents which led up to that decision. There are also issues with government compliance. In pharmaceutical, companies have to file pricing reports every month to the government. The government has been auditing companies for the last five years. In the last 5 years, they have levied $2.7B in fines for the inability to calculate prices correctly for the government.
For these two reasons - the opportunity to increase revenues and the opportunity to limit exposure to risk, revenue management is going very strong. It was a long answer to a simple question, but that is how we implement the value proposition.
Stopping revenue leakage and improving regulatory compliance.
This segment is part 6 in a 12 part series Segment 7 →
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