What Are Revenue Recovery Metrics?
Major retailers like Walmart and Target use several internal metrics to evaluate suppliers' performance. The four calculations covered in this article offer incredible insights into how well a CPG company can manage its financial resources and maximize profitability while selling in a retailer.
Revenue recovery metrics are KPIs designed to dig into revenue loss; they are essential to a supplier's financial health and operational efficiency. These numbers reflect the ability to recover from potential losses, monitor revenue status, and develop strategies to improve overall performance.
This article will dive into key revenue recovery metrics, focusing primarily on gross and net chargeback/deduction rates and dispute resolution averages.
Gross Chargeback/Deduction Rate: % of Deduction $ to Gross Revenue $
The gross chargeback/deduction rate shows the ratio of total deductions to gross revenue. Its purpose is to track deductions as a percentage of the supplier's business over time.
Deductions here refer to any decreases in revenue due to:
Returns (See Codes 44, 60, 92-97, and the 120s for examples at Walmart)
Target tracks this metric because it shows the health and success of their deductions over time. It provides an overview of how much revenue is lost to deductions and the effectiveness of their risk management and recovery efforts.
After measuring, this metric can and should be evaluated at the total company level of the supplier and by each retailer in which the supplier is operating. The gross chargeback/deduction rate is also a reliable benchmark for retailers to compare the performance of their suppliers and as a way of engaging critically with their own compliance programs.
Analyzing the gross chargeback/deduction rate is crucial in goal setting. Retailers can use the rate to determine whether the set goals and targets are realistic, achievable, and aligned with industry standards. The ultimate goal is to lower the deduction dollar amount as a percentage of the business over time to achieve a best-in-class rate of about 1% or lower.
Net Chargeback/Deductions Rate: % of Deductions $ to Net Revenue $
The net chargeback/deductions rate is another critical metric used by retailers and suppliers. It's similar to the gross chargeback/deduction rate in many ways, but it's based on net revenue after returns and allowances are deducted from gross revenue and will account for revenue recovered, such as money won back by disputing.
The purpose of this metric is the same as the gross chargeback/deduction rate---to track deductions as a percentage of the business over time. The rate also provides insights into the health and success of supplier performance, acting as a measuring tool for the company's financial health and reflecting the retailer's customer service quality.
The only serious difference between the two is that this metric looks to take into account revenue won back that was lost through invalid deductions/chargebacks as well as revenue that was lost through returns and allowances.
The formula for this metric is net chargeback divided by net revenue. High rates may indicate customer dissatisfaction due to product returns or disputes, suggesting the need for improvements in areas such as product quality, customer support, or return policies.
As with the gross rate, each retailer can take the measure for the total company, or it can be divided up by specific retailers. The goal, again, is to lower the deduction dollar amount as a percentage of the business over time, striving for a best-in-class rate of about 1% or lower.
The win rate is another fundamental metric that retailers use to measure revenue recovery efforts, but rather than measuring supplier success winning back deductions, it's designed to assess the effectiveness and efficiency of a dispute resolution process.
These metrics help assess how well disputes are being resolved in favor of one party over the other and how quickly these resolutions are reached. By tracking these metrics, organizations can identify areas for improvement, ensure fairness in dispute handling, and enhance customer satisfaction.
Win rates are helpful for both suppliers and retailers to track, and both parties are invested in keeping an accurate account of these.
These disputes could include:
Disagreements over payment terms
Through the win rate, suppliers can pinpoint recurring service issues that lead to disputes, analyze them, and implement strategies to address them. The win rate also helps assess the efficiency of the dispute resolution process on the retailer's side. It looks at how quickly disputes are being resolved and helps retailers identify any bottlenecks or areas of inefficiency that need to be addressed within the dispute resolution process itself.
Retailers must balance resolving disputes in their favor and preserving good relationships with suppliers and customers, and vice versa. In an ideal world, dispute resolution is never entirely beneficial to one party over the other, yet it also remains a smooth process. This metric can be measured at the total company level, in the case of retailers and suppliers, or by each retailer in which the supplier is operating.
The formula for calculating the win rate is (number of disputes won / total number of resolved disputes) * 100. This will give a percentage. A higher win rate indicates that a company has a solid legal team and effective negotiation strategies, ensuring that disputes get resolved in the company's favor more often than not. This is beneficial only so long as such a fact is not indicative of poor supplier-retailer relations.
By continually monitoring this metric, retailers can ensure their dispute resolution process becomes more effective and efficient, leading to better financial outcomes and greater customer satisfaction. Through careful monitoring and goal setting, suppliers can use this metric to boost their revenue recovery success and maintain high customer satisfaction.
Average Time to Dispute Resolution
This revenue recovery metric measures the average duration it takes to resolve disputes. It starts tracking from when disputes are filed and continues until a resolution is reached.
Like the win rate, this metric aims to gauge the efficiency of the dispute resolution process. It provides valuable insights into how swiftly retailers can handle and resolve disputes and, more importantly, helps identify potential bottlenecks or delays needing attention. When a dispute takes a long time to resolve, it can indicate systemic issues in the resolution process and may necessitate a re-evaluation.
The formula for calculating average time to dispute resolution is:
- Total time taken to resolve all disputes / number of resolved disputes
This computation gives a quantitative or numerical value that can be monitored over time and judged against competitors, allowing retailers to detect trends and implement changes as necessary.
The aim of measuring this metric is to minimize the time it takes to resolve disputes while ensuring due process and fair deliberations occur for every dispute.
By reducing the average time to resolution, retailers can:
Enhance the relationships with their suppliers
Reduce operational costs
Maintain a positive reputation for efficiency
There is no specific target for this metric. Each retailer's average time may vary depending on the complexity of the disputes and industry standards. Some disputes may require more time due to their intricate nature, while others could be settled more swiftly.
By regularly monitoring these metrics and periodically reviewing and adjusting them based on context and stakeholder feedback, suppliers and retailers can take necessary steps toward achieving their goals, enhance their operations, and maintain their positions in the retail industry.
How SupplyPike Can Help with Supply Chain Insight
Interested in improving your supply chain?
SupplyPike for Walmart helps suppliers save time by automatically harvesting shipping documents. Our shipping document integration then automatically performs validity checks on deductions and chargebacks, enabling suppliers to dispute invalid deductions automatically.
Track your revenue loss across multiple channels with SupplyPike's RevLoss Summary feature. The RevLoss Summary gives executive-level insights into the performance of your Walmart business, so that suppliers can not just avoid invalid deductions, but also continue to improve supplier performance.
Schedule a meeting with a team member today to see if SupplyPike is right for your business.
Written by Jessica Varon
About Jessica Varon
Jessica is SupplyPike's Senior Retail Insights Manager. Her industry expertise helps our teams build the best experience for our clients.Read More