Ignore Margin Management at Your Own Risk

Profits are the lifeblood of business. Some service providers are risking a dangerous hemorrhage. The BSS/OSS professionals are running point on this urgent MASH unit.

The key is margin management. Here are three key questions to consider.

A: Surprisingly, a lot of companies have ... hoped their cost calculations were correct. They hoped they were charging enough and they hoped they were collecting on everything they charged for. Lucky for many communications service providers over the past few decades, volumes were sufficient and competition sufficiently insufficient that hope was good enough. Not anymore. As it turns out, the hopes of many service providers were off anywhere from 3 percent to 15 percent. That is the range of revenue loss still being admitted by service providers around the world due to low cost and revenue visibility, manual and error-prone processes and a lack of resources to address the problem. Emerging markets have the dubious distinction of claiming the highest (worst) percentages, as they are too busy raking in revenues to bother plugging the leaks at this time. (Emphasis added; B/OSS Special Report titled, “Embracing the Eureka Moment of Granular Margin Management," p. 3)

Q: Isn’t margin management strictly bipolar, balancing cost and revenue?

A: Revenue management relates to monitoring and reconciling service usage with service invoicing. Cost management refers to the monitoring of costs related to management, operation and delivery of the service. Margin management is simply monitoring the service margins and involves both revenue management and cost management. These are accurate definitions and serve well as theoretical launching points. Cost and revenue are the two opposing pillars of margin management and it ultimately does focus on price most often. But in practice, margin management is much messier than that. It is extremely complex. Its complexity comes not from the formulas required for mashing cost and revenue and calculating the difference, but in identifying true costs, verifying the collection of proper revenues and mashing that up with pre-determined business rules and performance data, among other things. (Emphasis added; ibid, p. 4)

Q: A margin management strategy is nice, but not at the top of a truly effective priority scale, correct?

A: The SaaS model has also begun to change the paradigm of service providers that have historically made such back-office decisions an afterthought. The bottom line is: Margin management is not a nice-to-have solution; it is a must-have solution, said Suren Nathan, CTO at Razorsight. It also is doable and available today and the SaaS model makes it easier for service providers to consider support solutions up front. Nathan said telecom providers are notoriously slow at adopting any kind of analytics and have often done it only as an after-the-fact IT exercise. Even when the decision was made it has generally occurred in a silo-heavy environment. If there is one thing a good margin management solution hates, it’s silos. (Emphasis added; ibid, p. 7.)

Please click here for a free copy of the B/OSS Special Report on Margin Management.