Learn from these mistakes now, so your company doesn't have to pay later.
Revenue management remains an innovative way of doing business, but many companies push it to the side and don’t implement it.
They hesitate because they view the move to a revenue management system as too risky or too costly. In reality, it is neither.
Implementing a strong, nimble system of revenue management has helped my company, StorageMart, reach new customers, provide a higher quality of service to those customers, expand our operations, and increase profit margins.
I think startups and entrepreneurs in any field would benefit from investing in one.
Related Article: Accounting Mistakes That Put Your Small Business at Risk
How Revenue Management Works for Us
My company’s system uses big data to make informed decisions about pricing strategy. We compare several price points against the same price points at our competitors. Then, through the careful magic of analytics, this information is turned into hundreds of thousands of pricing points to be considered as we manage our inventory throughout the year.
On average, we’ve seen a 3 to 6 percent increase in our bottom line. While that might not sound terribly significant, with annual revenue of $150 million, it’s actually quite a compelling figure.
The key is to avoid making costly mistakes along the way.
Avoiding Common Mistakes in Implementation
I strongly believe that revenue management is a vital component of any business, no matter the industry or the size of the company. Learning some of the mistakes our company made during the switch may help you get on top of the learning curve faster, saving time and money.
1. Not Pursuing Implementation Soon Enough
When I first learned about revenue management in the 1990s, the concept was simple but revolutionary. Although I initially encountered the idea in reference to strategic pricing systems in the travel industry, I knew I wanted to jump on board right away.
Yet even after I attended a hotel conference aimed at enlightening those in the travel industry on the benefits, I found that those people I reached out to in the revenue management space weren’t interested in working with my company or with the self-storage industry in general. But I could clearly see the potential gains such a system offered to businesses, and I wanted access. When a revenue management consultant approached me nearly 20 years later, my company was finally able to implement a system — and, to this day, it is a critical aspect of our success.
Your biggest mistake is likely not getting involved soon enough. Once we put data to work for us in such a system, we saw an increase in profits right away. How would increased profits affect your business? The data are already there. Failing to harness and use the information only hurts your business.
2. Using Out-of-Date Information
When you’re getting started, all data seem new and feasibly useful. While applying all the data to your analysis might seem ideal, that’s not necessarily a good idea and can lead to further costly mistakes later. Instead, focus on the most current information.
Remember these rules about which information provides the most valuable analysis:
- Track relevant data and trends within your industry closely and continuously.
- Use the revenue management system as a daily strategy tool, allowing you to update rates more frequently according to changes in patterns you’re seeing.
- Receive automatic updates of the factors you track so you have current, real-time data.
For our specific needs, we focus on inventory, leasing interest, recent rental rates, and much more. The most up-to-date information is critical to setting the right prices.
Related Article: Two Sides of Content: Lead Generation vs. Demand Generation
3. Not Adequately Educating Your Team
A common mistake companies make when implementing a revenue management system is not providing enough support to the entire team. This system is profitable only when used wisely. If your general managers and sales teams are not using it or are underutilizing it because they don’t understand its true value, then you are losing money.
You’re also seeing a poor return on a substantial expenditure. Rather, employ these solutions:
- Get all team members involved in the process; they should understand exactly what the system is and why your company uses it.
- Give teammates hands-on experience, even if they don’t need to directly manage all components of the system. This creates an ownership mentality and increases interest.
- Follow up the implementation process with ongoing learning opportunities and updates. Don’t let your team’s reluctance hinder the success you can achieve with this system.
4. Trusting Just Any Old Revenue Management Company
Another big mistake that many business owners often make is not doing their due diligence to find the correct revenue management solution for their companies.
To partner with the right people to support your system, make sure their team:
- Understands your entire industry, not just their company’s product.
- Has a solid track record and a clear footprint in the revenue management industry.
- Receives plenty of training. As we can attest, this is a highly important factor, as it ensures you’ll receive sufficient support from the company during implementation.
At the same time, your solution should be customized to your particular industry and needs. The product should be comprehensive enough to manage even the most complex inventory, while still streamlined enough to give you the specific information and guidance you need.
Putting a Plan Into Place
The selection and implementation of a revenue management plan really depends on your company’s unique needs. The system we use has numerous moving parts and has been developed over a few years. That’s not to say it wasn’t working well for us from day one, but we’ve significantly honed and finessed its functions to make sure they are as specific to our industry and our company as possible.
Today, our system reviews 16 price points at least two times each week, along with pricing from at least three competitors across all our locations. With 170 locations, we look at nearly 850,000 pricing points each year. What’s right for your company? That depends on the number of locations, the number and type of competitors, and the price points you feel are most important to track and monitor.
Initially, the installation and management of your system should take a few weeks to a few months to get in place — but don’t stop there. I highly recommend moving beyond this and working to enhance the system with additional information and tools as you go along. The process takes time to perfect, but in doing so, you’ll enhance the long-range benefits the system can offer you.
Related Article: Which is Better: Cash Or Accrual Based Business Accounting?
Taking It Seriously
Revenue management helps meet customer expectations, provides competitive pricing strategies that won’t undercut your bottom line, and improves your overall understanding of your business, industry, and sector. Plan to invest in a system that works for you, but only after doing the research necessary to determine which is most appropriate for your company.
Our company did hit a few stumbling blocks along the way, but our system of revenue management has paid back our initial investment many times over. If you view the selection and implementation of one as a learning process, your company stands to grow for years to come.