Today’s manufacturing and distribution companies face a problem. Do they prioritize growth or efficiency – or can they do both? Alexander Group research shows that manufacturers and distributors who focus on profitable growth, investing in both growth and efficiency, outperform their peers. These high performers produce 12 percentage points higher revenue growth, 2 points lower sales expense/revenue ratio and have 1.8 times greater managed revenue per seller.
Sustained growth over time is another trait of high-performing manufacturing leaders. They produce 2 points more of their revenue from new logos while achieving 28 points higher net revenue retention than their peers.
The answer lies in instilling a company-wide vision of customer success, measuring customer lifetime value and supporting it with highly integrated interactions between Marketing, Sales and Service.
An integrated Marketing, Sales and Service approach for the entire, non-linear buyer journey embraces a vision for each function that includes:
Marketing – Demonstrate yield via customized outreach to targeted, unique buyer personas.
Sales – Drive productivity and efficiency through a customer-centric approach that delivers tailored solutions that match specific business needs. In addition, grow revenue efficiently from existing sources and new buyers and solutions while supporting customer satisfaction at the point of repurchase.
Service – Create net revenue retention in post-sales organizations by helping customers realize the value of products and services to their business outcomes.
High-performing manufacturers and distributors reach these objectives by employing an Identify-Land-Adopt-Expand-Renew (ILAER) approach supported by integrated teams. For manufacturers and distributors to become successful, it is no longer viable for Marketing, Sales and Service to operate in silos without a common customer-success vision and shared data and processes across the organization.
Clear expectations, established processes and handoffs, enablement tools and metrics are critical to gauge the success of integrated teams. However, the ILAER model is most effective when your tailored go-to-market coverage model focuses on delivering value to customer-specific needs.
Profitable growth companies continually evaluate the effectiveness of their investments, especially Marketing. Leading Marketing organizations demonstrate yield on investment by monitoring the interconnections of KPIs from reach-to-response and results-to-return. Alexander Group research shows that 68% of Modern Marketing Organizations can track Marketing-attributable revenue. As a result, 84% of companies plan to increase their marketing investments in 2023 (with primary investments in digital marketing), and demonstrated results show high performers have 2% improved Marketing Expense/Revenue.
Underlying these results is the growth of specific priorities for the Modern Marketing Organization. Priorities include tracking Return on Marketing Investment (ROMI), leveraging data and aligning functions and roles. Specific profitable growth actions include:
ROMI – Being intentional to measure and drive high Return on Marketing Investment, achieving 6-7X return by using best practices.
Data – Assess the integrity and actionability of first-party data, improve data sharing with partners and create clear buyer personas.
Role Alignment – Refocus on inbound marketing from outbound marketing to leverage valuable, relevant content. Incorporate digital lead generation teams, deemed the most effective worthwhile investment, based on Alexander Group previous research.
Modern Marketing is more than brand awareness or MarCom. This approach focuses on the individual contact level, providing metrics that help sellers sell better. The Marketing organization collects data and insights on target accounts, aligning with sales for desired outcomes. This approach relies extensively on digital marketing, which is why many companies prioritize digital roles and tools as a top investment.
In addition, while growth depends on acquiring new logos and retaining revenue, lead generation supports both efforts. Insights reveal not only potential new customers, but also if current customers believe the manufacturer or distributor provides value. Manufacturers and distributors cannot wait to discover that they no longer have their customer’s business, and advanced insights can help teams proactively address potential problems.
Salesforce productivity is critical for profitable growth, with high performers driving both productivity and efficiency. These leaders experienced 1.8X higher revenue per seller, with 4.5% more sellers at or above quota. The lower expense-to-revenue is also a hallmark, with profitable growth leaders incurring a 2% lower expense-to-revenue percent while having a 2.1X higher gross margin per seller. Compensation cost is 1 point lower compared to peers.
Priorities for an efficient, high-growth sales organization include:
Client-centric – Focus on customer needs, not just selling products, resulting in 3 point higher share of the revenue from diversified offerings while collaborating with Service to drive expansion selling.
Revenue Operations (RevOps) – Leaders use RevOps to drive Sales, Marketing and Service integration, with high-performers deeming RevOps a high priority. Top investors in RevOps have 20 points better Net Revenue Retention and have nearly 1/3 more sellers at or above quota.
Profitable growth manufacturers and distributors incorporate RevOps to enable sellers with insights, focus and the right technology. RevOps can take on different structures, depending on the organizational maturity, structure and investment. Nascent companies with fragmented sales operations functions may be starting its journey with RevOps. However, mature companies with well-defined RevOps functions understand and track its value and are strategically investing in people, processes and technology to drive better results out this function.
Compensation – Top companies use strategic compensation design to drive desired outcomes, focusing on growth, not volume.
Compensation is one of the most important motivating tools for the sales force. In fact, approximately 60% of sales expense is compensation. That said, ensuring a motived sales team is not just a problem solved by throwing money at the problem. Modern sales teams understand the connectivity between pay and performance. Top-performing organizations understand today’s sellers are note merely coin-operated; these organizations cultivate a culture driven by purpose, they provide a clear focus and insights to help seller deliver higher value to their customers. So, understanding how you optimize the remaining 40% investment in training, enablement and technology is essential for profitable growth.
Customer Success unites the company around a single vision, providing value with buyer-specific offerings and supporting the relationship to retain revenue after the initial sale has been made. Profitable growth companies prioritize Customer Success through:
Investment – Deploy customer success motions that deliver and demonstrate ROI, instilling CX as a core company pillar. They also invest in the alignment of Marketing, Sales and Service to provide value.
Tailored Customer Success – Use Voice of Customer (VOC) to inform and diversify product offerings, differentiate post-sales motions based on customer needs, and invest in digital monitoring and analytics.
Recurring Revenue – Maximize recurring revenue growth to reflect market valuation preferences. Review incentive plan design annually and track key performance indicators (KPIs) that include net recurring revenue (NRR). Top performers that efficiently achieve recurring revenue have a 12-point advantage of sellers at or above quota.
High-performing manufacturers and distributors unite around customer success and achieving profitable growth with targeted offerings that generate recurring revenue.
Not all manufacturers and distributors have the current capabilities of selling services, however the principles of value-based solution selling help organizations become better at driving “predictable” revenue growth – a key ingredient to profitability and higher valuations.
The service organization delivers on customer success and contributes to the customer experience (CX). They drive customer lifetime value (CLV) and generate new recurring revenue types that drive growth and valuation. In addition, the Service function can be a valuable resource for those organizations involved in solution selling and industry 4.0.
Optimizing the Service function can require a new go-to-market (GTM) approach that integrates them with the Marketing and Sales functions. Considerations include:
GTM – Companies must evaluate their GTM model, segmenting customers who would receive value from service offerings.
Sellers – Traditional sellers may not have the skills for post-sales products and services and require additional support. Companies must provide incentives to sell post-sales products, or the organization can deploy overlay roles to fill this function.
Selling Motions – Becoming a “Service-led Company” will require different selling motions. Service offerings will require specific selling motions unique to post-sale offerings, requiring integration with cross-functional departments.
Success requires a vision and must also represent VOC needs. So often, manufacturers and distributors may find themselves having created the perfect “widget” to sell but not understanding the value that product and its associated services delivers to the customer, thus wasting resources and growth opportunities.
Traditionally, manufacturers and distributors have often been followers of other sectors in their marketing and sales investments. However, higher performing organizations recognize that new buyer behaviors require new positions, including digital roles that can manage marketing programs and sales plays. No matter who owns the functional reporting, it is critical to have interconnectivity across the entire organization, driving insights to sellers. It is no longer sufficient to rely solely on outbound marketing, hoping to “send a message and stick it against the wall.” Instead, high-performing organizations are growing efficiently and profitably by connecting the company around customer requirements, gathering insights that unite the entire organization toward customer success.
High-performance manufacturers and distributors benefit from both growth and efficiency. But it also requires transforming the organization to create alignment between Marketing, Sales, Service and Customer Success while acknowledging all contributors. One common fear is losing valued sellers that generate current revenue and growth. Decades of commercial transformation has shown that approximately 1/3 of sellers will embrace the new direction and have the skills to move forward, 1/3 of sellers require additional training and investment, and 1/3 of sellers probably will not make the transformation journey. Getting comfortable with this and, most importantly, focusing on the middle 1/3, ensures your ultimately and timely success.
Manufacturers and distributors should continue to focus on the fact that profitable growth will require new investments. Maintaining a clear vision of customer success is the guidepost, supported by an integrated organizational approach, and is essential for achieving growth and profitability.
Adopting a profitable-growth strategy requires expertise and an understanding of the market, competition and organizational needs. Alexander Group works with manufacturers and distributors to drive revenue growth while optimizing investments to achieve efficiencies. To receive a complimentary briefing on the Commercial Practices to Drive Profitable Growth and Valuation study, please complete the online form and an Alexander Group practice lead will be in contact with you.
