This site runs best with JavaScript enabled

Optimising revenue in the resources industry: how to maximise value

small logo
In a highly-commoditised environment, getting a better price than your competitors sounds counterintuitive. So, what makes this possible? And what does effective sales and marketing performance look like?

In a highly-commoditised environment, getting a better price than your competitors sounds counterintuitive. So, what makes this possible? And what does effective sales and marketing performance look like?

Partners in Performance Mining Practice Manager Richard Horton and Resources Consultant Mark Eames caught up in Sydney to discuss the best practice approach to creating value, optimising revenue and staying flexible to adapt to changing market conditions.

 
Richard: Can you explain the components of revenue optimisation in the resources industry?
Mark: The first step is to ensure you have a plan to maximise margin and value. The second is to deliver that value. While this sounds simple, optimising revenue requires a deep understanding of how customers value your product, assessing how products are priced against the competition and evaluating options to improve value from mine to customer.

Customer value is the starting point, but most producers serve a narrow section of the market, measured by geography, quality, channel or commercial terms. Building a complete picture is a critical step – you need to understand how particular products affect the customer’s processes and profitability.

Different quality attributes may be valued to varying degrees by different customers, such as alumina level in iron ore, secondary payable metals or impurities in copper concentrates and coking properties in metallurgical coal.

Every producer undertakes some level of mine-to-customer optimisation in determining pit shells, mining plans, processing options, product blending and transport to target markets.

But how do you truly optimise when market factors such as reference prices, product premiums or competitor offerings are constantly changing? And how do you optimise when many choices around mine configuration and processing are often locked in for the mine life?

The answer is both to ensure a full range of choices is assessed and then to examine real choices. Every day, implicit choices are made around products and customers. These choices can be used to optimise outcomes.

Product pricing does not often fully reflect customer value, so there may be opportunities to improve value capture, whether it’s by focussing on particular markets, selecting price references, defining commercial terms or choosing channels.

 

"Building a complete picture is a critical step – you need to understand how particular products affect the customer’s processes and profitability."

- Mark Eames, Resources Consultant

 

Richard: In a commoditised market, how do you get a better price than your competition?

Mark: The principle of understanding customer value always applies. Even where a product is generic or commoditised, different service elements or commercial items can allow value to be created for the customer and potentially captured by the seller.

But in practice, producers are rarely paid at the pricing benchmark for resources markets, even in a commoditised market. Today, for example, there was a difference of about 10% between the West Texas Intermediate and Brent crude. So, what’s the oil price? Well, nobody actually gets paid the oil price.  

Relatively small volumes of coal are sold at the API3 thermal price in Europe or the PLV index. Many copper miners sell a concentrate not copper metal.

[API3: benchmark price reference for coal imported to northwest Europe; PLV index: Platts Premium Low Vol coking coal – the flagship benchmark assessment of coal pricing information.]

 

Richard: How do you measure good sales and marketing performance?

Mark: Rigorous benchmarking of the realised price against the competition is important, despite the challenges of obtaining accurate data and adjusting information for different product attributes. However, this is not enough, as it’s backward-looking and the information is constrained.

Customer feedback is also important and can be a rich source of potential information. Customers can be relied upon to provide feedback on products and services. But the challenge is to assess this information carefully. A customer may, understandably, suggest that prices are too high and quality too low.

 
Richard: What commodities does this apply to?

Mark: The principles of revenue optimisation apply to all markets. While economic theory – and common sense – suggests limited opportunities to improve outcomes in transparently-priced, high-value products with global markets such as precious metals, the World Gold Council works to develop policies, set standards, and strengthen market infrastructure, bringing on new investors and shaping global dialogue. There are much greater opportunities in LME [London Metals Exchange] metals, speciality resources products and bulks.

 

Richard: What is the process to determine the size of the opportunity in revenue optimisation?

Mark: An initial diagnostic can identify key levers in the product mix and marketing, which dynamically impact profitability, together with key improvement steps. This will determine the ‘size of the prize’. Thorough optimisation follows, based on an understanding of customer value and product options.

But ultimately, it is establishing disciplines end-to-end across the organisation that will change a volume- and cost- driven business focussed on sales into a market-focussed business delivering higher margins.

About the authors

Hubspot System