Uncover the secrets of effective revenue growth management (RGM) with our article on key strategies for the CPG industry. Transform your business...
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Every brand is locked in a perpetual race: the race to amplify revenue while ensuring sustainable and profitable growth. With the ever-increasing complexity of the CPG landscape –think evolving consumer preferences and shifting market trends–, managing revenue growth, particularly net revenue, has shifted from being a competitive edge to a fundamental necessity.
Enter the power of revenue growth management analytics. By understanding and diligently tracking key performance indicators (KPIs), businesses can monitor their revenue growth management (RGM) effectiveness. These analytics don't just shed light on where a company stands today; they project where it can potentially be tomorrow.
However, RGM is not merely about crunching numbers. It's about interpreting these numbers to discern a brand's financial health, identifying hidden growth opportunities, and making strategic decisions. Let's delve deeper and discover if your CPG brand is truly harnessing the full power of revenue growth management to its advantage.
Analytics matter in revenue growth management
With the continuous shift in consumer trends and ever-evolving market dynamics, simply staying abreast isn't enough —it's imperative to lead. This is where RGM analytics come into play, acting as a lighthouse for CPG businesses navigating the murky waters of profitability. But why are analytics so essential in RGM?
- Optimize pricing strategies: Price management and pricing analytics remain at the heart of revenue growth management. Understanding the impact of list pricing and trading terms on volume, sales, and profit is vital, especially as COGs increase and the supply chain becomes more complex. Too many companies make the error of either pricing themselves out of the market or leaving money on the table.
- Understanding consumer behavior: At the core of every successful CPG strategy lies the consumer. Revenue growth management analytics allow brands to understand the intricacies of consumer behavior. These insights are foundational in creating strategies that resonate deeply, fostering stronger brand-consumer connections. For example, a recent survey revealed that 76% of consumers deem it vital for CPG brands to minimize their carbon footprint. Additionally, 77% believe that these brands ought to source their products in an ethical manner.
- Optimized trade spend: Analytics ensure that trade spend is not just an expenditure but an investment. By analyzing the returns on various trade promotions, you can allocate resources more efficiently, ensuring that every penny spent drives as much incremental sales as possible. The best optimizations are constraint-based, working with robust sets of guardrails to ensure promotions are both strategic and adoptable by retail partners.
- Forecasting & future-proofing: Analytics don't just provide a snapshot of the present; they're a window to the future. By utilizing data-driven insights, you can forecast trends, anticipate market shifts, and position yourself effectively. This proactive approach ensures that brands aren't just reacting to changes but leading them.
Now, with the variety of metrics and KPIs available, how do you gauge if your CPG
company is acing its RGM game? The best way to determine this is by scrutinizing your adaptability to market changes, the effectiveness of your trade promotions, and the consistency in your revenue growth trajectory —all underpinned by solid, actionable insights from revenue growth management analytics.
Key performance indicators (KPIs) for revenue growth management
Steering your brand towards success requires not just intuition but tangible metrics that signal progress, health, and areas of potential improvement. These vital KPIs serve as the lifeblood of revenue growth management, empowering you with insights to maximize growth. Let's delve deep into these crucial KPIs and understand their definitions and significance in RGM.
Simply put, revenue growth measures the percentage increase in a company's sales over a defined period. This KPI is important in understanding how effective your strategies have been at increasing household penetration and/or buying rate, launching new products, or entering new markets. With the insights from revenue growth management, you can identify which strategies yield the best results and adjust your approach accordingly.
Profit margin is a KPI that assesses the profitability for each dollar of sales, expressed as a percentage. A higher profit margin indicates a more profitable company that has better control over its costs. In the context of RGM, understanding profit margins can help you optimize your pricing strategies and control production costs, ensuring sustainable revenue growth.
Market share goes beyond your individual company to evaluate your standing within the larger industry landscape. It measures your percentage of total sales in your company's industry. Through revenue growth management, you can leverage market share data to identify areas of potential expansion or market penetration and leverage key areas of strength.
Price elasticity probes into the heart of consumer behavior. It measures the responsiveness of demand to changes in price, helping you understand how sensitive your customers are to price adjustments. Quantifying price elasticity informs and shapes your pricing strategy. Ensure that you understand the impact of macroeconomic trends like inflation on your price elasticity.
In a world where brands continuously vie for consumer attention, understanding the effectiveness of promotional activities is pivotal. Promotion effectiveness gauges the success of such activities in driving sales and revenue. By employing revenue growth management, you can assess which promotional tactics and discount combinations actually drive incremental sales, not just dilute the margin on sales you would have gotten anyway.
Determine how well your CPG business is managing revenue growth
The success of your CPG business isn't just about producing quality products —it's about understanding your financial trajectory, especially when it comes to revenue growth. By gauging how efficiently you manage this growth, you can uncover actionable insights and ensure your brand's continued success.
To understand how your company is doing based on the KPIs mentioned, you'll need to gather data and analyze it. Here's a step-by-step guide on how to do it:
- Revenue growth
To calculate your revenue growth, you'll need to compare your revenue from two different periods. The formula is:
(Current period revenue - Previous period revenue) / Previous period revenue * 100%
This will give you the percentage increase (or decrease) in your revenue.
- Profit margin
Your profit margin is calculated by dividing your net income by your total sales revenue and then multiplying by 100 to get a percentage. The formula is:
(Net income / Total sales revenue) * 100%
- Market share
To calculate your market share, you'll need to know your company's total sales and the total sales of the market. The formula is:
(Your company's total sales / Total market sales) * 100%
- Price elasticity
Price elasticity measures how demand for your product changes when its price changes. It's a bit more complex to calculate and usually requires market research or historical sales data. You might need the help of a data analyst or a tool that can perform this calculation.
- Promotion effectiveness
To evaluate the success of trade promotions, it's vital to consider specific KPIs that shed light on ROI. Here's an overview of pivotal KPIs to measure and interpret:
- Lift: Measures the effectiveness of an event, often expressed in dollars or units.
- Incremental sales: Captures the sales volume boost during a promotion.
- Event spend: Represents the total trade expenditure for an event relative to the total revenue it produced.
- Cost per incremental dollar (CID): A metric that gauges the efficiency of spend in generating incremental sales.
- ROI: Assesses the profit-based return on investment, emphasizing the generation of incremental sales.
Consider using an RGM software like CPGvision. It can automate these calculations, provide up-to-date insights, and help you make data-driven decisions to optimize your revenue growth strategies.
Leverage RGM software for effective revenue growth tracking
The CPG landscape demands innovation not only in products but also in the way businesses approach their revenue growth strategies. With market dynamics shifting at an unprecedented pace and a vast influx of data flooding the industry, how does a modern CPG brand stay ahead? The answer lies in harnessing the power of revenue growth management analytics through cutting-edge RGM software.
Insights at your fingertips
In the past, businesses would have to wait for weeks or even months to gather, process, and analyze sales data. With today's RGM software, promotional tactics can be adapted during the planning year, reflecting emerging trends and current feedback. This immediacy means you can pivot strategies on the fly, ensuring alignment with market demands.
Automated data analysis
Manual data analysis, apart from being time-consuming, is prone to human errors. Modern RGM software sifts through vast datasets, extracting actionable insights. Artificial intelligence is the next frontier to enhance the value and speed to action of data. The beauty of automation is twofold: it ensures accuracy and frees up valuable human resources to focus on strategy implementation rather than number-crunching.
The importance of cross-functional collaboration
As the CPG landscape becomes increasingly complex, the seamless integration of insights from various departments is vital. By fostering collaboration, CPGvision ensures that all teams work cohesively, leveraging shared insights and unified strategies. This holistic approach not only eliminates silos but also drives well-informed decisions, ensuring that opportunities are maximized, and challenges are proactively addressed, ultimately enhancing overall profitability and growth.
The CPGvision advantage
At the intersection of technology and industry expertise lies CPGvision's RGM software suite, designed exclusively to propel CPG businesses into the future. Our fully integrated revenue growth management suite provides an unparalleled advantage to brands seeking to maximize profitable revenue growth.
The future of CPG lies in harnessing the power of data and analytics. Are you ready to take your revenue growth tracking to the next level? Dive into the world of revenue growth management with CPGvision. Don't wait; the future of CPG growth is just a click away. Book your discovery call with us today.