Technology & Innovation

Revenue and margins – A cautionary tale of two companies

Revenue margin examples from two companies.

colleagues talking in office

This is the cautionary tale of two companies. While not actual companies, their situations might apply to many real businesses. The company names are fictitious and any connection between these and actual companies is purely coincidental.

Since I’m a movie buff, let’s call the two companies Genco (The Godfather, Part II) and Bantu Wind Inc. (Raiders of the Lost Ark).

Bantu Wind can’t steady the ship. The company isn’t reaching its growth targets, and no one is hitting quota. Their sales are flat and starting to decline. Their customers are unhappy because the company can’t keep its commitments, the result of low margins straining resources. Bantu Wind leadership can’t chart a path for growth and react to changes in the market and because the company lacks visibility into their cost, profit and losses, they’re floundering, adrift and rudderless. Bantu Wind’s pricing isn’t optimized for the market, and they’ve tried discounting programs to stay afloat with no luck (see what I did there?).

Genco runs like a well-oiled machine. Everything is going smoothly and they’re exceeding plan. They’re blowing away the competition. Genco customers are incredibly happy and keep coming back for more. Everyone works together, pulling for the team and there’s great communication from top on down. They have a positive company culture, and everyone feels like they’re part of the Genco family.

Because Genco is doing so well, the company’s shareholder value is way up, as is market share. They’ve reduced time to market and have a much better market fit than their competition. Genco has the right product mix and they’ve optimized both pricing and margins. Their net-promoter score is exceedingly high, their customers are loyal and there’s plenty of up-sell and cross-sell opportunities. Genco has extremely low employee turn-over and their recruit-to-hire costs are extremely low. The company’s running so well it’s almost criminal.

Meanwhile Bantu Wind continues to stagnate in the doldrums. They’ve lost market share and their competitive position. Their customers are jumping ship. They’ve missed their revenue and growth opportunities, and they can’t seem to get it right, leading to lower margins.

So, what helps Genco thrive while Bantu Wind falters? Part of it could be the metrics they’re using to track the business and what they’re using to track those. Both companies must have visibility into company health and real-time access to information to make the right decisions at critical moments. Their key performance indicators (KPIs) might include:

  • Time to market
  • Net-promoter score, percentage of repeat customers and churn rates
  • Percent of revenue increase weekly, monthly, quarterly and year-over-year
  • Number of returns, warranty issues and recalls
  • Number of inventory turns
  • Average revenue per account or average revenue per user
  • Annual recurring revenue

Genco tracks these metrics in real time and can make data-driven decisions on these and other financial indicators. Bantu Wind doesn’t have the visibility it needs to chart its course. It’s using systems that feed it stale data or worse, they must combine the data from disparate systems or entities using laborious, error-prone processes.

Unlike Genco, Bantu Wind lacks business-process automation capabilities. They’re behind the curve in their digital transformation efforts, so processes such as accounts payables and accounts receivables take much longer than they should. Using simple bookkeeping software such as QuickBooks, there’s a lot of manual entry and no unified chart of accounts for consolidations and eliminations. Trust me, Genco has eliminations down pat, take the cannoli!

Could lack of automation really be that big an issue? Think of the extra cost and wasted time lacking automation. How about missing vendor payments and jeopardizing supplier relationships? What about collections? Automation streamlines business processes, increasing efficiency and reducing costs. That saves money that could be put back into the business to make it more competitive.

What Genco has is something that Bantu Wind lacks. Genco uses a cloud-native financial management platform to integrate its systems, including their customer-relationship management platform. With this seamless exchange of data, it can track contracts, payments, invoices, utilization and customer preferences. Bantu Wind has data locked in compartments and information doesn’t flow freely. Its trading partners (customers and suppliers) are disconnected, so for example, when a customer places an order, it doesn’t know if it or its suppliers have the inventory to meet customer expectations.

So, is it really that simple? Using the right financial management platform makes that much of a difference? Here are some of the things Genco can do that Bantu Wind can’t:

  • Reporting – With advanced, easy-to-use reporting, Genco can
    • Use dimensions (such as customer, vendor, employee, location, product or project) to identify additional revenue opportunities
    • Use data visualization to show trends, patterns and correlations
    • Identify pricing errors, cost creep and margin exceptions early on
    • Identify products and services customers aren’t buying and salespeople aren’t selling from a basket of goods
    • Provide tools to help salespeople determine customers who are up, down, haven’t ordered, etc.
    • Group like-customers to identify true cost to serve and adjust pricing to make all customers profitable
    • Use alerts to manage by exception
    • Accuracy track contract billing ensure profitability (Genco knows contracts!)
  • Analytics – In addition to reporting, Genco uses the analytics capabilities of its cloud-native financial management platform, which enables:
    • Customizable dashboards
    • Forecasting and predictive models
    • Proactive notification of business-rule exceptions
    • Quoting and estimating integration with Configure-Price-Quote (CPQ) tools
    • Seamless integrations between estimating and order fulfillment that reduces time and enhances customer experience
    • Easy data exchange with multiple suppliers and vendors

Genco has another advantage over Bantu Wind. It uses a multidimensional general ledger that came with prebuilt dimensions for project, customer, location, department, vendor, item, employee and class. This gives it in-depth visibility into profit and loss. In addition to the prebuilt dimensions, Genco has added their own so they can add more context for each transaction, budget and customer. Using QuickBooks, Bantu Wind doesn’t have this information at their fingertips, and it’s impossible to find unless they comb through each of every transaction. Genco knows the information is dependable and up to date. Required dimension values ensure data quality by making dimension values mandatory for transactions that post to specified accounts. As well, autopopulated dimension values simplify data entry and improve accuracy by autopopulating values for specified dimensions based on values of other dimensions.

Not only does Genco use a multidimensional general ledger, but it also employs a multibook general ledger, with predefined books for cash, accrual or both, and automatically posts to the correct book enabling accrual-based firms to see the impact of cash transactions more clearly. In addition, it’s using books it defined to support reporting by different standards, including International Financial Reporting Standards and generally accepted accounting principles. And side-by-side multibook reporting shows comparative performance by different bases.

Because Genco has a lot of contracts and a large labor force, it’s using timesheets tracked with the artificial intelligence (AI) of its cloud-native financial management platform. The AI assistant gathers and organizes activities from emails, calendars, browsers and other sources and then makes suggestions as to what to include, along with information on the associated client, project or task. I assume the AI assistant took the ometrà oath! But fear not, all the data is protected, and you need certain permissions by role to access it.

Genco, unlike Bantu Wind, has streamlined its contract processes by using a native integration with Salesforce, giving it the ability to effectively manage subscription contracts as the business scaled. The Genco finance team eliminated extremely high-touch workflows, reducing the time to invoice customers, cutting the monthly close and increasing efficiency. It adopted granular trend-and-revenue analysis to help boost its gross margin. By integrating Sage Intacct with Salesforce CPQ, the company revamped its revenue operations with automated billing and revenue recognition upon order entry. Now, when new orders come in, they’re instantly added to the appropriate Salesforce opportunities. Each opportunity is quickly reviewed and approved by the revenue operations team before being converted into a Salesforce contract object. Next, Salesforce pushes all relevant data to Sage Intacct, where the accounting team does a final review of the order. It then calculates amortization over the contract term and sends out an invoice. Very cut and dry, so to speak.

Another area where Genco shines as compared to Bantu Wind is collections. For accounts payable, Bantu Wind uses an integration between QuickBooks and a third-party billing application. Since QuickBooks isn’t a cloud-native platform, the data exchange between the two systems is clunky and takes some effort. Genco uses the native Sage Intacct accounts payable module – it uses AI to ingest invoices and then matches these to ensure all invoices are legitimate, and then manages all the payments. Bantu Wind must use yet another application to process and distribute payments, slowing the process down even further. Is it any wonder its vendors are ready to jump ship?

Genco harvests huge benefits using a modern cloud-native financial system. They’ve increased their revenue and margins while streamlining operations to maximize profitability. Their financial management platform, shared across key stakeholders in the business, eliminates organizational barriers and siloes to encourage collaboration and drive improved business results. Genco is optimizing working capital and asset management to determine its ability to meet business obligations. And it is improving its positive and seamless customer experience to expand market share and increase revenue and profitability. Bantu Wind can’t do anything of those as it drifts aimlessly, lacking what it needs to plot a successful course.

So, can we make you an offer you can’t refuse?