Exhibit 5-1 The Five Components of Revenue Strategy

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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 2

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 revenue. • Functional divisions and the communication and execution gaps that develop among them, are some of the major challenges that large organizations face. 3

5-2 What Is Revenue Strategy? (cont.)

• 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 growth. – Revenue growth in entrepreneurial companies is achieved through an intense focus on customers. – Acquiring customers begins with the marketing message. 4

Exhibit 5-3 How an SCA Provides Competitive Advantage

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Sources or Platforms for competitive advantage include:

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Price/value

--Frank Bozin sells high-quality, good tasting water at a bargain price.

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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.

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Customer experience

—New PIG Corporation sells industrial clean-up services, but in such a way that customers “experience” each contact with the firm.

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Customer convenience

—Bobby Thigpen’s American Fast Lube services cars at the customer’s home or 6 office.

Marketing:

• 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.

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5-2a Marketing (cont.)

• Knowing the company’s products and services and the factors that govern customer decision making—important requirements of successful marketing.

– 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 market. – Entrepreneurs also leverage their contacts to generate low-cost marketing opportunities. – Entrepreneurs observe the competition closely. 8

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 compensation. 9

Four Types of Outside Sales

1. Direct Selling 2. E-Commerce 3. Party Plans 4. Multi-level Marketing 10

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 customers. • Multilevel marketing (MLM): Network marketing—direct-selling process is duplicated by salespeople who sponsor and train others. 11

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. 12

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 13

5-2d Credit and Collection Policies

• Venture must develop credit and collection policies, execute policies consistently to maximize revenue. – 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. 14

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 customers. • 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 15

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

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• A pre-collect notice is sent by a collection agency to the debtor. • Collection agencies focus on collecting past due accounts for businesses. – One law they must follow is the Fair Debt Collection Practices Act, or FDCPA.

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5-2d Credit and Collection Policies (cont.)

– 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

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the time, resources, and marketing collateral that are required to add a single customer to the firm’s customer list. 17