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Second Rule: Gain 10% of Revenue from New Products

Smart manufacturers and distributors are making bold investments in solution offerings and operations, but few have yet to deploy the full power of commercial models to drive higher long-term valuation.

Driving Value: Alexander Group Rule of Five

Leveraging higher growth and profitability.

Alexander Group extensive and timely research indicates that manufacturers and distributors who adhere to the “Rule of Five” valuation model can consistently outpace competitors and enjoy premium valuations. Based on over 100 interviews with leading executives, revenue-focused client projects, and industry research using hundreds of datasets, here are five key rules that will unlock the power of your commercial model. Part 1 of this series focused on the first rule, keeping seller-to-sales manager ratios below 10:1 as those companies that do are able to provide more oversight and training while leveraging sales opportunities. Part 2 will focus on the second rule in detail. The others will be explored in subsequent articles.

What are the five rules of above-market valuation?

  1. Front-line Sales Managers per Core Field Seller
  2. Percent of Revenue from New Products
  3. Percent of Revenue Invested in Digital Tools for Commercial Functions
  4. Core Sales Team Attrition Rate
  5. Revenue Operations Resource per Core Field Seller ratio

2. Percent of Revenue from New Products

Target: >10%

Technology advances are shrinking product lifecycles while competitors are quick to commoditize undifferentiated legacy products. It is very difficult to maintain share, much less grow above market without a robust new product pipeline. Added to the mix, and depending on manufacturing and distribution subsectors, service and software offerings can greatly expand growth opportunities.

Top performers use a four-pronged approach to achieve this leading benchmark:

  1. Focused, strategic investments in product development and launches characterized by the results that your products and services deliver to the client
  2. A strong culture of inclusion and collaboration between product development and the entire commercial team (Marketing, Sales and Service)
  3. Detailed buyer journey mapping and voice of customer integration to the entire commercial ecosystem
  4. Extensive sales team training and collateral, in addition to targeted incentives

Compared to less innovative firms who don’t reach the 10% new product target, innovation leaders achieve 2% higher growth, leading to 10%+ higher revenue over a five-year time span. Focused investments in Sales, Marketing and Service are the key to achieving high revenue and growth.

Part 3 of this five-part series will highlight how investing in digital tools for commercial functions leads to a 45% higher revenue growth and a more likelihood of meeting revenue targets. For more information on how you can generate higher growth and profitability, please contact an Alexander Group Manufacturing and Distribution practice leader.

 

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PART I: Alexander Group Rule of Five Series for Higher Growth and Profitability

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