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The Role Of Billing In Customer Profitability
David Stark, GBA AsiaPac facilitator and Director of Marthan, comments on the role Billing plays in Customer Profitability.
Tough Times
Customer profitability, the raison d'etre of business, the subject of numerous white papers, conferences and workshops is perhaps receiving more attention today than ever before. Why? The heady days of the 90's in which growth and profit flourished, have been replaced with a climate of caution and despondency in which cost containment and risk management are the order of the day. Understanding the true costs of doing business and where profits are coming from is vital for company survival and never more so than now.
This is particularly the case in the telecommunications community where share prices are depressed, traditional revenue streams are declining and operators are facing increased competition, in some cases going out of business. Market scepticism over the expectations from new technology and 3G in addition to some high-profile accounting scandals, have made it increasingly difficult to secure funds to progress new revenue opportunities. Telcos are just not fashionable right now. How soon this turns around nobody knows, but meanwhile operators have the unenviable task of generating profit whilst effectively containing costs. Of course there is no silver bullet but Billing and Customer Relationship Management (CRM) have a vital role to play in meeting both of these objectives.
What do we mean by Customer Profitability
Profitability traditionally means 'gain resulting from the employment of capital' which is usually interpreted in financial terms. However, it can also mean 'advantage' or 'improvement.' Both of these definitions are apt and provide desirable objectives for a company. In a telco, profitability has usually been measured in product terms; volume of product sold, revenue generated versus cost to supply.
Given that operators for many years have sold 'products' this approach to profitability was not unreasonable and allowed decisions to be made on sales remuneration, the timing of product phase-outs and the introduction of other products. However, the way in which these measurements were made often raised concerns as to accuracy and validity, as these were compromised through inadequacies in the supporting systems (e.g. CRM, Billing) and business processes. Much of the criticism voiced concerned the assessment of the actual costs, which are difficult to factor down to an individual product.
We no longer live in a product-centric world, but one in which customers buy 'solutions.' Often these solutions are facilitated through partnering with third parties. In the past, operators have been fortunate in controlling their own business in its entirety. For example: a video on-demand service where an operator provides the service in conjunction with a 3rd party video distributor.
In order to determine the profitability of this transaction it is necessary to understand the cost and revenue flows between the operator, distributor and customer. These are likely to vary according to service, distributor and the customer. In practice, other 3rd parties may be involved in sales and service distribution thus further complicating the financial flows. Measuring performance (i.e. profitability) on a purely product basis (not withstanding its known flaws) is therefore becoming more complex but more importantly, is unlikely to give us the required answers to the well being of the company.
In an increasingly competitive landscape it is important to maximise profits through superior services and to retain the most profitable customers. Across the industry it is now recognised that to be effective an operator needs to understand and monitor customer profitability. This relatively new notion extends performance measures beyond the old boundaries of Customer Acquisition Cost and Churn Reduction and places new demands on supporting systems and processes.
The Role of Billing in Profitability
Historically, Billing has provided the back-office function; collating usage and network events from the provisioning and use of services and consolidating, processing this information (rating, pricing, packaging and discounting) for presentation to customers. The front-office capability has been the exclusive domain of CRM. Billing has provided the focus on product management with CRM looking after the customer. Introduction of a new service required product configuration in the billing engine and generally little change to CRM. The future will be marked by an increasing emphasis on solutions that integrate applications, technologies, and suppliers within, but not across, all market segments. Collaboration and co-operation will become the normal mode of behaviour, allowing flexibility in the design and delivery of the customer value proposition.
To succeed in a 'solutions-driven' world we need to understand our customers like never before through:
• Development of the customer relationship - broader and deeper, using advances in e-CRM capability
• Being at the forefront of Personalisation - the essential ingredients in delivering the new economy to individuals
• Accurate cost and revenue identification at the customer level
• Effective integrated end-to-end business processes for all customer functions.
This implies:
• A common Product and Customer database shared between CRM and Billing
• New functionality from CRM
• Timely and accurate capture of all service usage information (Mediation)
• Customer revenue tracking -current plus history (Billing)
• Appropriate account structure for General Ledger postings (Billing)
• Capability to bill 3rd parties (Billing)
• Breakdown per solution for 3rd party revenue sharing (Billing).
Customer profitability requires identification of cost per customer and consolidation / reporting with the revenue information provide by the billing system. This level of analysis does not logically sit within CRM or Billing, as there is no single source for all revenue and cost information. Costs need to include items such as infrastructure (e.g. network), personnel (sales, provisioning, support), licenses, sales commissions and royalties.
Challenges
The primary problem is one of funding for new initiatives in this difficult economic climate.
Getting a view of customer profitability has a number of difficulties not the least of which is the practical problem of regular and comparative reporting on a large volume of customers. Cost identification for solutions is more complex as are the business processes associated with service delivery and support. Use of a common product and customer database is essential to ensure integrity of pricing (from sale to billing) and customer information. Revenue assurance processes will need to be more effective in ensuring all revenue is accounted for.
Perhaps one of the least understood factors is how market segmentation will change in the face of a 'solutions' market. The mobile industry is probably closer to this issue than most through its forays into 3G type services. What is known is that the old conceptions of market segments will be severely challenged and we are likely to see an increase in the number of segments for market analysis. This will mean further work in customer classification and CRM.
The biggest challenge I suggest is not technology but one of attitude. To understand customer profitability requires a fresh approach to business processes coupled with smart use of technology such as billing and CRM. Setting up customer profitability will take time and money for a benefit, which is actually hard to quantify. These are perhaps the key factors affecting the development of customer profitability practices within the industry, something that still has a long way to go.
Conclusions
Customer profitability as a concept is here to stay but it will be some time before we see effective mechanisms in place to manage it. These require a fundamental change to approach and process with a sophisticated reporting /analysis capability. The lack of an off-the-shelf solution coupled with the difficulties of funding make it difficult for operators to develop this area of expertise. Vendors can go some way to assisting in revenue and cost determination but ultimately the operators will need to address their business processes to support Customer profitability.
Tough Times
Customer profitability, the raison d'etre of business, the subject of numerous white papers, conferences and workshops is perhaps receiving more attention today than ever before. Why? The heady days of the 90's in which growth and profit flourished, have been replaced with a climate of caution and despondency in which cost containment and risk management are the order of the day. Understanding the true costs of doing business and where profits are coming from is vital for company survival and never more so than now.
This is particularly the case in the telecommunications community where share prices are depressed, traditional revenue streams are declining and operators are facing increased competition, in some cases going out of business. Market scepticism over the expectations from new technology and 3G in addition to some high-profile accounting scandals, have made it increasingly difficult to secure funds to progress new revenue opportunities. Telcos are just not fashionable right now. How soon this turns around nobody knows, but meanwhile operators have the unenviable task of generating profit whilst effectively containing costs. Of course there is no silver bullet but Billing and Customer Relationship Management (CRM) have a vital role to play in meeting both of these objectives.
What do we mean by Customer Profitability
Profitability traditionally means 'gain resulting from the employment of capital' which is usually interpreted in financial terms. However, it can also mean 'advantage' or 'improvement.' Both of these definitions are apt and provide desirable objectives for a company. In a telco, profitability has usually been measured in product terms; volume of product sold, revenue generated versus cost to supply.
Given that operators for many years have sold 'products' this approach to profitability was not unreasonable and allowed decisions to be made on sales remuneration, the timing of product phase-outs and the introduction of other products. However, the way in which these measurements were made often raised concerns as to accuracy and validity, as these were compromised through inadequacies in the supporting systems (e.g. CRM, Billing) and business processes. Much of the criticism voiced concerned the assessment of the actual costs, which are difficult to factor down to an individual product.
We no longer live in a product-centric world, but one in which customers buy 'solutions.' Often these solutions are facilitated through partnering with third parties. In the past, operators have been fortunate in controlling their own business in its entirety. For example: a video on-demand service where an operator provides the service in conjunction with a 3rd party video distributor.
In order to determine the profitability of this transaction it is necessary to understand the cost and revenue flows between the operator, distributor and customer. These are likely to vary according to service, distributor and the customer. In practice, other 3rd parties may be involved in sales and service distribution thus further complicating the financial flows. Measuring performance (i.e. profitability) on a purely product basis (not withstanding its known flaws) is therefore becoming more complex but more importantly, is unlikely to give us the required answers to the well being of the company.
In an increasingly competitive landscape it is important to maximise profits through superior services and to retain the most profitable customers. Across the industry it is now recognised that to be effective an operator needs to understand and monitor customer profitability. This relatively new notion extends performance measures beyond the old boundaries of Customer Acquisition Cost and Churn Reduction and places new demands on supporting systems and processes.
The Role of Billing in Profitability
Historically, Billing has provided the back-office function; collating usage and network events from the provisioning and use of services and consolidating, processing this information (rating, pricing, packaging and discounting) for presentation to customers. The front-office capability has been the exclusive domain of CRM. Billing has provided the focus on product management with CRM looking after the customer. Introduction of a new service required product configuration in the billing engine and generally little change to CRM. The future will be marked by an increasing emphasis on solutions that integrate applications, technologies, and suppliers within, but not across, all market segments. Collaboration and co-operation will become the normal mode of behaviour, allowing flexibility in the design and delivery of the customer value proposition.
To succeed in a 'solutions-driven' world we need to understand our customers like never before through:
• Development of the customer relationship - broader and deeper, using advances in e-CRM capability
• Being at the forefront of Personalisation - the essential ingredients in delivering the new economy to individuals
• Accurate cost and revenue identification at the customer level
• Effective integrated end-to-end business processes for all customer functions.
This implies:
• A common Product and Customer database shared between CRM and Billing
• New functionality from CRM
• Timely and accurate capture of all service usage information (Mediation)
• Customer revenue tracking -current plus history (Billing)
• Appropriate account structure for General Ledger postings (Billing)
• Capability to bill 3rd parties (Billing)
• Breakdown per solution for 3rd party revenue sharing (Billing).
Customer profitability requires identification of cost per customer and consolidation / reporting with the revenue information provide by the billing system. This level of analysis does not logically sit within CRM or Billing, as there is no single source for all revenue and cost information. Costs need to include items such as infrastructure (e.g. network), personnel (sales, provisioning, support), licenses, sales commissions and royalties.
Challenges
The primary problem is one of funding for new initiatives in this difficult economic climate.
Getting a view of customer profitability has a number of difficulties not the least of which is the practical problem of regular and comparative reporting on a large volume of customers. Cost identification for solutions is more complex as are the business processes associated with service delivery and support. Use of a common product and customer database is essential to ensure integrity of pricing (from sale to billing) and customer information. Revenue assurance processes will need to be more effective in ensuring all revenue is accounted for.
Perhaps one of the least understood factors is how market segmentation will change in the face of a 'solutions' market. The mobile industry is probably closer to this issue than most through its forays into 3G type services. What is known is that the old conceptions of market segments will be severely challenged and we are likely to see an increase in the number of segments for market analysis. This will mean further work in customer classification and CRM.
The biggest challenge I suggest is not technology but one of attitude. To understand customer profitability requires a fresh approach to business processes coupled with smart use of technology such as billing and CRM. Setting up customer profitability will take time and money for a benefit, which is actually hard to quantify. These are perhaps the key factors affecting the development of customer profitability practices within the industry, something that still has a long way to go.
Conclusions
Customer profitability as a concept is here to stay but it will be some time before we see effective mechanisms in place to manage it. These require a fundamental change to approach and process with a sophisticated reporting /analysis capability. The lack of an off-the-shelf solution coupled with the difficulties of funding make it difficult for operators to develop this area of expertise. Vendors can go some way to assisting in revenue and cost determination but ultimately the operators will need to address their business processes to support Customer profitability.
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