How to Choose the Right Revenue Growth Management Solution for your CPG Company
Choosing the right revenue growth management tool can be a game-changer. Dive into our article to discover the key factors you need to consider!
Want to grow your CPG business? Our comprehensive guide to revenue growth management provides the tools and strategies you need. Don't miss out!
Are you in the CPG industry? Then you need RGM (Revenue Growth Management). It’s the secret weapon successful brands use to skyrocket their revenue, even when the market is tough.
Why RGM? Why now?
In a world where consumer trends shift overnight and economic uncertainties are the norm, Revenue Growth Management (RGM) is your roadmap to consistent growth. It’s not just about managing and optimizing trade spending but also about pricing and promotion strategies, and the assortment and optimization of product mix.
RGM is your ticket to mastering pricing, promotions, and product mix like a pro.
But how can RGM transform your business strategy? What makes it the tool that turns industry challenges into golden opportunities? This guide is your shortcut to the answers. Designed for both RGM rookies and veterans, it’s full of insights, strategies, and actionable steps to elevate your CPG game.
McKinsey & Company defines RGM as "the discipline of fostering sustainable, profitable expansion from your consumer base through an assortment of strategies encompassing product assortment, promotions, trade management, and pricing."
In essence, RGM is a strategic methodology employed predominantly within the CPG industry. It aids businesses in making data-driven decisions regarding critical aspects such as pricing, product assortment, trade promotions, and distribution strategies.
You may be interested in: Is Your CPG Business Maximizing Revenue Growth?
While RGM isn't a new concept and has been a part of business strategy for many years, its relevance and scope have evolved significantly.
Traditionally, RGM primarily focused on optimizing pricing. However, this isn't the case any longer; it's about consolidating all commercial planning aspects and route-to-market strategies under one unified approach. This expansion of RGM's scope signifies its increasing importance, meaning effective RGM allows you to stay ahead of the curve. Here's how:
Download our latest whitepaper on 9 Industry Trends Impacting RGM for 2023 and Beyond
Through RGM, companies have realized the power of this dynamic and holistic approach to revenue growth. RGM yields a host of tangible results that significantly enhance your business performance. It's an engine for sustainable growth that drives continuous improvement across multiple areas of a business.
Properly executed, RGM strategies yield significant benefits, such as:
The definition of the components of RGM varies; "it depends on who you ask!" However, regardless of how RGM activities are grouped into pillars, RGM typically includes many or all of the following components:
#1. Pricing and price pack architecture: The strategy around how a product is priced in the market. It involves a deep understanding of consumer price elasticity, competitor pricing, and achieving the right balance between volume growth and profitability. Price Pack Architecture involves selecting the right product size/packaging and pricing combinations to balance consumer needs with profitability.
#2. Trade spend management and optimization: This refers to managing the funds invested in marketing activities such as promotions and discounts with distributors and retailers. The goal is to ensure that each dollar spent generates the maximum possible increase in sales and profit while simultaneously maintaining and enhancing brand equity and retail partnerships. CPG manufacturers must manage not only promotional trade dollars but also trading terms, contracts, rebates, everyday low pricing, and nuisance fees within the context of trade management.
#3. Assortment optimization and product portfolio management: Assortment optimization involves selecting the right mix of products to offer in different channels or locations to cater to diverse consumer preferences. It also entails managing the internal product portfolio to maintain the balance between optimal sales and productivity, while minimizing SKU proliferation. Additionally, there is a component of managing innovation, both from an internal brand perspective and for enhancing retail partner category growth and profit.
4. Promotion: Managing the consumer promotion activities to drive product demand (pull) - this involves consumer strategy and analysis of the omnichannel journey.
The pursuit of revenue growth is an ongoing challenge that separates thriving companies from those that are stagnating. It's crucial that you assess the effectiveness of your revenue growth strategies and determine how well your organization is adapting to evolving market dynamics.
To gauge how well your business is doing in this aspect, there are several Key Performance Indicators (KPIs) you can track:
#1. Revenue growth: The percentage increase in your company's revenue over a specific period. It's a clear indication of your business's ability to generate sales and a vital metric for assessing the effectiveness of your RGM strategy.
#2. Profit margin: Measures your company's profitability for each dollar of sales, expressed as a percentage. It's a critical indicator of your pricing strategy and operational efficiency.
#3. Market share: The percentage of total sales in your industry that your company holds. An increasing market share is usually a good sign that your RGM strategies, including pricing, promotions, and product assortment, are effective (although this measure does not account for the efficiency of these activities - i.e., their ability to generate profitable growth).
#4. Price elasticity: Measures how sensitive your customers are to changes in price. Understanding price elasticity helps guide your pricing strategy.
#5. Promotion efficiency/ROI: Evaluate the return on investment for your promotional activities. A high ROI means your promotions are effective - driving sales and contributing to revenue growth.
#6. Promotion effectiveness - Lift: The increase generated from promotional activity, expressed as a percentage.
#7. Promotional effectiveness - incremental sales: The increase generated from promotional activity, expressed in dollars, units, volume, or profit.
#8. Household penetration rate: Indicates the percentage of households that purchase your product within a specific period. Growth in household penetration is a strong measure of brand health.
#9. Household buying rate: Measures the frequency at which households purchase your product and is particularly useful when comparing your brand to similar alternatives. If your buying rate is higher, the consumers you do have are more loyal.
#10. Net sales: The total revenues minus allowances, discounts, and returns.
#11. Trade rate: Trade spend as a percentage of gross sales can be calculated for a specific time period (fiscal year) or on an event basis. When a brand can lower its trade rate without sacrificing sales or market share, it is becoming more efficient, which is a key goal in revenue growth management.
#12. Margin/contribution margin: Measures how much of a product’s sales revenue remains after deducting the variable costs associated with selling it.
#13. Price realization: The difference between the list price and the actual or expected selling price is strong price realization, which serves as an indicator of a product's market value. In other words, you don’t have to heavily discount to capture sales.
There really isn’t much of a difference. The discipline of RGM is about driving profitable revenue growth. Net Revenue Management simply puts more emphasis on profit. The activities and results from both are the same.
In essence, while revenue management can drive growth, net revenue management ensures that this growth is profitable. Another way to help you ensure revenue growth and profitability is by adopting a comprehensive RGM software like the one we offer here at CPGvision.
You may be interested in: 13 Questions About Revenue Growth Management (RGM) in the CPG Industry Answered
According to a recent survey, more than 80% of consumer packaged goods CEOs aren’t satisfied with their RGM results. However, with the rise of advanced technologies, RGM software has emerged as a transformative solution.
RGM software is a powerful tool that has the potential to reshape the way you operate, empowering you to optimize pricing, promotions, trade spend, and assortment, all while driving sustainable revenue growth.
Here's how you can leverage the power of RGM software to transform your business:
When evaluating different RGM solutions, make sure you consider the following key factors:
Here at CPGvision, our RGM software helps you save your company money and time by providing answers and making recommendations, delivering speed to value for your company.
You may be interested in: What to Look for in an RGM Solution for CPG Companies
Staying one step ahead of the competition requires a winning combination of innovative strategies and cutting-edge technology. CPGvision is an integrated RGM suite that stands out for its comprehensive features, superior analytics capabilities, and commitment to client success.
Navigating the complexities of the CPG market can be a daunting task, but with the right tools and strategies, it's a challenge that can be mastered. Don't leave your revenue growth to chance. Contact us at CPGvision, and let's start your journey to unrivaled success
Choosing the right revenue growth management tool can be a game-changer. Dive into our article to discover the key factors you need to consider!
Uncover the secrets of effective revenue growth management (RGM) with our article on key strategies for the CPG industry. Transform your business...
Understand the importance of effective revenue growth management with our enlightening article. Learn how to drive your business growth to new...