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Using Analytics to Create Profitable Revenue Growth Management

People are slowly returning to life outdoors. With vaccinations and lifted stay-at-home orders, consumers are raring to make up for all the activities they missed out on during the thick of the pandemic. This is great news for retailers, as they are likely to see an increase in revenue throughout 2021. Already, retail sales have increased by 37% as of June this year.  

 The large jump in revenue is due to combination of increased demand, relaxing COVID restrictions, and extra disposable income from stimulus checks. According to the U.S. Census Bureau, about 58.2% of those who spent their stimulus checks reported spending stimulus payments on household supplies and personal care products and 20.5% spent it on clothing.  

Interestingly, the boost in sales is a result of both in-person and online transactions. Forbes notes that in-store foot traffic is on the rise, while online shopping is projected to grow to 27% of overall retail sales by 2023. With both options now available, shopping habits are most likely to be dictated by the online and in-store experiences retailers create 

As revenue continues to grow, it is essential that businesses learn how to manage that growth. 

Importance of Revenue Growth Management in CPG

Revenue Growth Management (RGM) in CPG is critical to a business’ sustainability and future. RGM takes traditional revenue driving practices, such as trade spend and pricing, and brings a tactically targeted but strategically wholistic approach. There are many facets to a strong RGM such as pricing strategies, trade promotion, product innovation, and consumer engagement. The key to a strong RGM is to understand how and where RGM fits into your overall corporate strategy. To understand this, you will need to evaluate which factors are most influential in driving your company’s overall success and growth. 

Retailers had disparate experiences when the pandemic hit. Some retailers experienced unprecedented demand as consumers stockpiled in preparation for the worst. Others watched demand dip drastically. Therefore, there is no one solution for revenue growth management after pandemic effects have set in. Instead, companies must assess their own RGM metrics to determine what their next steps should be as we emerge from the COVID era. 

Potential for Analytics in Revenue Growth Management 

The best way for a company to assess their own situation is with analytical tools, such as spend management, global trade management, and sales and marketing software.  

Throughout 2020, analytical tools for spend management have gained traction due to increased online sales. These tools gave financial executives a competitive edge due to their real-time data analytics and insights. The quick reliance on these tools have led companies to prioritize the use of these tools and advanced analytics to manage their revenue growth throughout 2021 and beyond. According to a Gartner survey, 84% of CFOs have made technology adoption a top priority for 2021. 

While advancing technology is making data more accessible at a faster rate, it also has the potential to create a lot of noise. Companies will need to learn how to filter out excess information and find information that is most pertinent to them. In terms of revenue growth management, companies must use the data to identify strong opportunities and mitigate potential risks and challenges. 

Key RGM Metrics to Track in CPG

Below are the top five key metrics that will be most helpful in determining what a company’s RGM should be.   

  1. Net Revenue: Net Revenue is the total amount of sales a company after taking into account discounts, returns, and commissions.  
  2. Retailer Profit: Retail profit are the expenses a retailer pays to keep the business running subtracted from the retailer’s total revenue from direct sales. Manufacturers and retailers work together to increase retailer profit. 
  3. Category Growth: Category growth is a multifaceted metric that analyzes audience, frequency of product use, and price per use. In other words, it evaluates penetration, frequency, and per unit price.  
  4. Net Profit: Net profit is the amount of money a business, typically a manufacturer, earns after all costs have been paid. 
  5. Contribution Margin: Contribution margin is calculated by subtracting all variable costs from the total revenue earned. 

Organizations should start with net revenue and then build on retailer profit and category growth. As they evolve, they should begin to include cost-to-serve P&L items to get net profit and contribution margin metrics. 

Clarkston offers a unique Revenue Growth Management maturity model that enables us to develop the best fit RGM plan for you. If you’d like to learn more about how you can optimize your RGM, contact us and we will be happy to connect you with an expert. 

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Tags: Analytics, Revenue Growth Management