Page 96 - Performance Leadership

Chapter 6 One Version of the Truth • 85

Table 6.2
Alignment of Revenue

Actual Plus or Minus Description
Gross revenue 10,000
Net revenue 7,500 –2.500 Discounts
Net own revenue 6,000 –1.500 Royalties
Recognized revenue 5,500 –500 Not recognized this period
Management revenue 6,200 +1.000/–300 From/to other countries
Total commission revenue 6,800 +600 Double commission (overlay)
Invoiced amount 8,000 +500 Future revenue
Cash inflow 8,800 Paid from previous periods
Statutory revenue 6,300
CIT/VAT revenue 6,600

The country manager may see that the difference between gross rev-
enue and net revenue is about average, and thus discounting has been
kept within the normal range. However, if we also subtract royalties,
the manager may consider net own revenue to be rather small. The
software sold contains components for which royalties are paid to a
partner. By itself, this is neither good nor bad. It decreases margin, but
may indirectly improve the value of the relationship, potentially lead-
ing to acquisition of the partner, and therefore increasing overall rev-
enue and profitability in the longer term.
The gap between net revenue and recognized revenue can mean dif-
ferent things. Usually, it is caused by revenue being recognized in
future periods, such as maintenance or consulting services. This is per-
fectly normal. But, it may also tell the manager to what extent internal
processes are in order. Errors in the sales negotiation process could
cause this revenue not to be recognized immediately.
There is also an interesting gap between management revenue and
commission revenue. Ideally, commission revenue adds up to man-
agement revenue. This ensures that the sales compensation structure
(which is located on the cost side of the equation) is aligned with man-
agement revenue. However, there might be overlay revenue, where
two salespeople (such as an account manager and a product special-
ist) each receive 100 percent commission based on the same sales