What sales leaders need to know about using digitalization to create new revenue streams.
Not long ago, booking a place to stay meant going to a full-service hotel chain — one that owns and maintains multiple buildings and on-site restaurants and hires vast numbers of service workers. Now, many room seekers just head to Airbnb, which is using an online, community-based platform to challenge an established business model. The result is new revenue generated with minimal costs incurred and the ability to expand room inventory with near-zero capital.
Focus on digital initiatives most likely to drive enterprise market share, revenue and profits
This epitome of digitalization should inspire sales leaders to look for and support digital opportunities in their own companies. But what types of opportunities should they champion?
The short answer is that they should focus on digital initiatives most likely to drive enterprise market share, revenue and profits. But to identify those options, “sales leaders must first understand six key ways that digital business can lead to net-new revenue,” says Hung LeHong, vice president and fellow at Gartner.
With the right information, sales leaders can step up to lead the conversation with CIOs, IT leaders and others in the C-suite about lucrative digital value creation.
6 options for new digital revenue
There are six key ways to earn new digital revenue, says LeHong:
- Sell existing digital assets: Sell assets that others consider valuable, such as information, know-how or brands.
- Digitalize a product or service: Do this to complement traditional, nonconnected offerings in the enterprise’s product mix.
- Sell metered revenue: Sell on a pay-as-you-use basis so buyers can reap the benefits of the asset without sinking resources into owning or managing it.
- Contract assets based on shared-risk outcome: Vary prices for buyers based on a shared-outcome metric, such as service level maintained, a successful sale or a health outcome.
- Run a platform business: Enable the trading of products and services without having to own or distribute the products or services.
- Move into adjacent or new industries: Explore the organization’s potential for using its know-how in one industry to launch its way into another.
Some of these options (see Figure 1) are more transformative than others or require more time, resources or dedicated workstreams. Others focus more on using digital technologies and approaches to improve existing revenue streams versus creating net-new ones.
How digital revenue creates enterprise value
The degree of transformation also affects the amount of value contributed to market share, revenue and profit (see Figure 2). For example, $1 million in revenue earned via one of the six digital revenue categories will likely have better financial characteristics than the same amount earned from traditional analog ways.
CEOs expect digital to account for 46% of the value customers see in their products
If sales leaders fully understand the degree of transformation and the value-generation potential of each digitalization approach, they can collaborate more productively with CIOs to prioritize and articulate how they will contribute to the rest of the organization.
According to the Gartner CEO Survey: The Year of Digital Tenacity, by 2019, CEOs expect digital to account for 46% of the value customers see in their products, so the process of digitalization is certainly not going away. In this environment, sales leaders who can identify and advocate for key digital initiatives will help drive their enterprises to access some of the financial advantages that, until recently, have been the domain of startups and digital giants.
Gartner for Sales Leaders clients can read more in Six Ways to Earn New Digital Revenue by Hung LeHong.