Growth vs. Inflation

How to Differentiate Quality from Quantity by Deconstructing Revenue Streams

Just as pandemic-driven supply chain bottlenecks are beginning to ease, the impacts of rampant inflation have taken their place and introduced a variety of new challenges for manufacturers across the globe. Despite booking record profits, manufacturers must consider this apparent growth in tandem with the swelling cost of raw materials.

In inflationary environments, the importance of understanding and differentiating between the quality of revenue and the quantity of that revenue increases significantly. Investing in value delivery to current customers through marketing, sales and service motions helps to insulate revenue streams from pricing pressures. Measuring the success of those investments in growing current revenue streams almost always supports the case for ongoing focus.

Manufacturers should follow a strict–but meaningful–process to focus on growing quality revenue during times of inflation: Conduct segmentation and opportunity modelling; analyze buyer behaviors; align revenue resources accordingly; and adjust KPIs to stay ahead of market volatility.

Segmentation and Opportunity Modelling

Making investments into current customers to secure and expand current revenue streams begins with detailed analytics of where revenue derives. Understanding churn (lost customers) and expansion growth (new revenue in existing customers) by region, country, or product help to point to pockets of opportunity. Best-in-class companies also conduct a regular scan of “whitespace” accounts to determine a fair share of opportunity that should come from potential customers This allows manufacturers to target their efforts where it makes the most sense, providing a strong foundation for growing quality revenue during even the most uncertain of times.

Ultimately, creating a customer-level segmentation model with share of wallet opportunity included is the best way to go about this process. Many companies miss this critical element of opportunity and therefore over rotate towards the current revenue profile–but this shouldn’t be the case any longer.

Measuring Buyer Behaviors

Once a company has “sized the prize” at current and potential accounts, beginning to track buyer activity at the individual contact level helps to best guide business operations forward. This means closely reviewing role-specific interactions, website searches, and buying patterns then measuring them against key performance indicators (KPIs) developed to drive quality revenue growth over time.

Accurately assessing buyer behaviors from the ground-up will help to improve not only the quality of customer service an organization is able to provide, but also the quality of the underlying revenue generated.

Aligning Revenue Resources

Marketing, sales, and service resources should be reallocated to align with the opportunities identified in segmentation, as well as the buyer activities detailed in the buyer behavior measurement. Reprioritising organizational resources to best match up with findings from the first two processes, kickstarts quality revenue growth across the business.

Organizations that have historically oriented less towards customers must change their ways in order to stay afloat, as deepening relationships with customers might mean providing differentiated service levels or faster supply. Factory operations and supply chains, for instance, play a crucial role in delivering for the most critical customers at the most impactful moments.  A customer lifecycle analysis and alignment of commercial resources (marketing, sales and service) ensures consistency of value delivery.  At its core, making (and managing to) these tradeoffs forms the foundation for stablising revenue in a volatile market

Dynamically Adjusting KPIs

Uncertain times mean that organizations of all types must embrace agility and resilience across the board. Models built to invest with customers should include clear progress and success metrics (e.g., increased digital interaction or new product contracts), and should be easily pivotable when necessary.  Of course, the balance between “moving too early” and “waiting too long” must be maintained, but providing meaningful data and insight to decision makers helps to remove some of the inherent reactivity.

Inflation is just one of many significant challenges thrown at the manufacturing industry in recent years. However, if manufacturers approach their long-term targets and adhere to accurate growth measurements by analyzing the health of revenue streams, understanding the determining factors that comprise organic growth, and adjust KPIs to stay ahead of market volatility, there is a strong case for a successful future ahead.

For more information on how Alexander Group can assist you, please contact a manufacturing and distribution practice lead.