Ch 5 Outline

Exhibit 5-1 The Five
Components of Revenue Strategy
Ch 5 Outline
1. Introduction
2. What is Revenue Strategy?
a. Marketing
b. Sales
c. Customer Service
d. Credit and Collection Policies
e. Multiple Revenue Streams
5-2 What Is Revenue Strategy?
• Providing a valuable product or service to
customers is the primary means by which
businesses produce revenue.
– The entrepreneur has three rules for success:
• Focus on the customer
• Keep turnaround times short
• Always give the customer what they want
– In most businesses, the CEO coordinates the interaction
among marketing, sales, and customer service
functions—functioning as the vice president of
• Functional divisions and the communication and execution
gaps that develop among them, are some of the major
challenges that large organizations face.
5-2 What Is Revenue Strategy?
• The entrepreneur must integrate the five components of
revenue strategy into a coherent whole that focuses on
delivering value to customers.
• Most large companies tend to gauge their success
in terms of quarterly profit increases.
– Most traditional companies focus on profit
improvement more than revenue growth.
– The entrepreneurial venture, most focus on revenue
– Revenue growth in entrepreneurial companies is
achieved through an intense focus on customers.
– Acquiring customers begins with the marketing
Exhibit 5-3 How an SCA
Provides Competitive Advantage
Sources or Platforms for competitive advantage
► Price/value--Frank Bozin sells high-quality, goodtasting water at a bargain price.
► Unique service features—Katherine Barchetti offers
men’s suits and women’s shoes based on her
knowledge of specific consumers’ needs.
► Notable product attributes—Vincent Yost sells his
“smart” parking meters at a premium price.
► Customer experience—New PIG Corporation sells
industrial clean-up services, but in such a way that
customers “experience” each contact with the firm.
► Customer convenience—Bobby Thigpen’s American
Fast Lube services cars at the customer’s home or
• The primary objective of a venture’s
marketing efforts from the perspective of
revenue strategy is to develop a sustainable
competitive advantage (SCA).
• Another way that marketing contributes to
revenue strategy is through analysis of
consumer behavior and projections about
future tastes and buying habits.
5-2a Marketing (cont.)
• Knowing the company’s products and services
and the factors that govern customer decision
making—important requirements of successful
– The extent and amount of marketing conducted by a
company—function of its budget.
• In the early phases of an entrepreneurial venture, marketing
budgets are usually limited. To maximize revenue:
Entrepreneurs target a market, develop a persuasive message and
use communication channels that routinely reach the target
Entrepreneurs also leverage their contacts to generate low-cost
marketing opportunities.
Entrepreneurs observe the competition closely.
5-2b Sales
• Selling is the business activity that is most directly
related to a company’s revenue.
– Inside sales—employed by the venture.
• Salespeople can be an expensive investment.
• Most salespeople prefer to earn through commissions.
Commission structure is an important source of motivation or
de-motivation to the sales force.
Sales compensation is complicated and must be fully integrated
with the revenue strategy.
• Guidelines for entrepreneurs to follow:
Remember sales compensation is for employees responsible for
persuading the customer to act.
Realize that the company is going to change as it grows and
compensation has to change as well.
Understand difference between sales compensation and total
Four Types of Outside Sales
Direct Selling
Party Plans
Multi-level Marketing
5-2b Sales (cont.)
– Outside Sales—not employed by the venture
• Direct Selling: Independent contractors who
represent and sell products for one or more clients.
• E-commerce: Enable customers to learn about the
company’s products or services and to purchase
them online.
• Party plan selling: Simplified distribution channel—
manufactured products are sold directly to
• Multilevel marketing (MLM): Network
marketing—direct-selling process is duplicated by
salespeople who sponsor and train others.
5-2c Customer Service
• Many inexperienced entrepreneurs think of
customer service as a necessary evil.
– Because customer service is an after-sale expense, it
constitutes non-revenue-generating overhead.
– Although customer service is often an after-sale
business function, it impacts revenue in two ways:
• Dissatisfied customers may elect to return their purchases—
resulting in lost revenue.
• Satisfied customers may tell others about their positive
customer service experiences—resulting in new revenue for
the venture.
5-2c Customer Service (cont.)
– Customer service strategies can become a source of
competitive advantage for entrepreneurial ventures to
determine a way to offer a service that competitors
either don’t offer or don’t perform effectively.
– Identify a challenging customer service problem in an
industry and be the first business to find and offer an
effective solution.
– Emphasize pre-sale customer service as a means of
acquiring paying customers.
– Customer service can also produce revenue through the
sale of warranties.
– Customer service strategy includes the selection and
implementation of appropriate technologies.
• Customer relationship management (CRM) software
5-2d Credit and Collection
• Venture must develop credit and collection
policies, execute policies consistently to maximize
– Credit is based on the assumption that the customers
will pay later, usually with an interest charge.
• The longer the customer has to pay back the loan and the
lower the interest rate charged by the lender, the greater will be
the effect on sales volume.
• Increased sales volume is the primary objective of both the
marketing and sales activities.
If managers responsible for these activities determine the
venture’s credit policy, the outcome is predictable—they would
tend to keep interest rates low and payback terms long.
5-2d Credit and Collection
Policies (cont.)
– The venture must develop credit and collection policies
and execute them consistently to maximize revenue.
– Granting credit without an established collection policy
has ruined many businesses.
– The company’s collection policy is the system used for
collecting from customers who do not pay on time.
– Accounts receivable refers to payments due from
• A company with receivables is loaning its cash to customers
instead of collecting it.
• The average actual collection period is known as days
receivable and can be calculated as follows:
Days receivable = actual accounts receivable / sales per day
5-2d Credit and Collection
Policies (cont.)
– When days receivables is greater than the venture’s
credit terms—age accounts receivable by multiples of
the credit terms.
– Entrepreneur needs understands the concept of days
receivable and aging, and other aspects of collection.
• The longer an account goes unpaid, the more difficult it
becomes to collect.
• A pre-collect notice is sent by a collection agency to the
• Collection agencies focus on collecting past due accounts for
One law they must follow is the Fair Debt Collection Practices
Act, or FDCPA.
5-2d Credit and Collection Policies
– A new venture may occasionally need to take
action to motivate a customer to pay, but
customer retention is always important.
• Retaining customers is important because it often
costs a lot of money to acquire them.
• Customer acquisition costs—the time, resources,
and marketing collateral that are required to add a
single customer to the firm’s customer list.