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Avoiding Concessions

Preventing a concession is easier than dealing with one after it has occurred, and virtually always ensures more uniformly satisfied customers AND more predictable revenue for your company. Most concessions occur because of inadequate internal policies and controls, and poor communications between your prospects/customers and your company. Proper expectation setting with customers and employees is particularly critical.

Policies and Controls
Since concessions can come in many different forms and from a number of different directions, good process controls and checks are required. Things to consider might include:

• Careful review of contracts before they are signed. Has the customer been told of limitations, exclusions, possible delays, hazards of self-installation, etc specific to the details of that contract and offered appropriate alternatives before they sign.
• Review of delivery of software for no additional fee, possibly reconciling shipments with revenue
• Review of “no-charge” service work related to client activity
• Review of requested changes to maintenance start dates
• Detailed review of certain receivable adjustments prior to processing – not tax or creditworthiness related
• Controls preventing extension of set payment terms – not related to creditworthiness

Education and Training
Once solid polices and guidelines are in place, training is a critical investment. Anyone involved in the process needs to be given the knowledge required to avoid those difficult situations that may result in a concession.

• Sales – where most communication and miscommunication occurs
• Product Management – proper mapping and planning of the life cycle of a product can prevent surprises.
• Marketing – this is the beginning of the expectation setting process.
• Telephone Support – providing a patch or bug fix should not be an issue, but introducing a new product or unplanned services for free might be.

Training should include information such as: understanding the basic revenue recognition rules, defining concessions, discussing examples of decisions that create them, and a focus on expectation setting for customers as it applies to every aspect of your products. It is also important that people know who they can contact with questions at any point in the sales and support processes. You can then help work through the business problem by developing feasible alternatives.

Providing Concessions or Upselling Products: Which Would You Rather?

With a new emphasis on setting customers’ expectations, and providing the tools and knowledge they need, the sales team will generally be able to manage the process well. In fact, done properly, sales may find themselves in "upsell heaven" with far greater opportunity to offer additional products and services at the time of the original contract.

For instance, if we go back to the concession examples, both cases could have been avoided with more complete conversations about contingencies and exclusions with the customers. In the first case, postponing the start of services for three months might have averted the negative situation. Even if a penalty were incurred it may have been better than a concession for an unavoidable implementation delay. In the second case, a discussion of inclusions as well as notable exclusions should have taken place and been documented by the sales team. Not only does this provide a much stronger position for the vendor down the road, it also increases the chances for selling additional products, services, and rights to the customer within the original contract.

About the Author
Dave Wood is the founder and principal of RevOps Consulting, LLC and has over 18 years experience working with revenue recognition as a revenue policy and compliance director, quote-to-cash process owner, shared services director and consultant to various software companies. Dave’s primary expertise is in process and policy development, training, and working with the sales force to help a company independently achieve a solid revenue recognition system. A basic software revenue recognition training program is available for no charge through RevOps Consulting, LLC at www.revops.net.