A Fresh Look at Revenue Management for the Manufacturing Industry

The survey “The New World of Revenue Management,” conducted by the Institute of Management Accountants and cloud enterprise resource planning (ERP) provider FinancialForce, has been making waves across all sectors of the business world. After surveying 6,000 accountants and financial professionals, CFOs and senior managers, the Institute of Management Accountants and FinancialForce reevaluated how they assess their revenue management practices in response to new market conditions.

The survey found that as the business landscape changes with a service-centric mind-set, the manufacturing industry, along with other industries, is exploring sophisticated technology to advance accounting practices from merely using spreadsheets to using purpose-built applications.

New Business Models

New categories of business models are garnering attention because they can have a positive influence on a business’s valuation. The new business models include software subscriptions, recurring billing, professional services, and product and service bundling that encourage revenue growth. The models, however, require new billing and revenue recognition procedures to track what can be recognized and when tasks are better served by technology beyond spreadsheets.

Notable findings from the survey are as follows:

• Because of a lack of awareness, companies risk noncompliance with new revenue recognition standards.
• Half of respondents said that their firms fall under generally accepted accounting principles guidelines for revenue recognition. Of those not affected, two-thirds haven’t evaluated new standards.
• Because of an inability to address complex scenarios and ensure data integrity, spreadsheets are no longer the best way to complete accounting tasks.
• Yet 60 percent of respondents said that spreadsheets still are the most commonly used method to track revenue recognition. The use of purpose-built ERP apps is a close second at 46 percent, but on the rise, with 21 percent implementing or planning to implement an ERP app.
• Companies using ERP apps to track revenue rate the highest overall satisfaction with integrity of data, with 40 percent claiming to be “very satisfied” and 51 percent “somewhat satisfied.”
• Market requirements are spurring the adoption of new billing models supported by advanced software. The most popular trigger for change in revenue recognition methods is billing models, followed by top management decisions, better software, and changes to revenue recognition standards.
• The majority of respondents who said they were “very satisfied” with their revenue management systems are using ERP systems to track revenue recognition.

Recurring Revenue

Raphael Bres, general manager for financial management applications at FinancialForce, said that we are in the “midst of the as-a-service economy boom, which is making recurring revenue the central model of new and traditional businesses.”

Bres concluded that “CFOs and senior management teams are at a crossroads and must address these major shifts or risk being noncompliant, inefficient and, worse yet, losing market share for failing to give customers new billing models.” The survey stressed the importance of adopting a strong revenue management application that not only helps companies gain a predictable revenue stream and superior customer and revenue forecasting analytics but also automates complex accounting requirements.

Where does your manufacturing company fit into this new environment? Give us a call today to discuss revenue management for your production facility.