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Third Rule: Invest 0.8% of Revenue in Digital Tools and Commercial Functions

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 discussed the second rule, how >10% of revenue should be derived from new products as firms that abide by this rule achieve 2% higher growth, leading to a 10%+ higher revenue over a five-year time span.

Part 3 will focus on the third 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

3. Percentage of Revenue Invested in Digital Tools for Commercial Functions

Target: 0.8% (and growing)

Manufacturers and distributors have been traditionally slower to embrace commercial technology than companies in other sectors but were forced to do so to keep pace with customer demands and the new dynamics of social distancing. Other than e-commerce, the current industry average is 0.4% investment as a share of revenue. However, industry leaders who invest 0.8% of revenue see much better results.

Enhanced data, improved customer insights, and automated, integrated revenue functions result from digital investments. Because of improved data, top-performing companies can assess customer and account needs, mapping critical points of digital interactions by segment. Top performers are using digital tools to integrate sales, marketing and service processes and data and continually evaluate which technology best serves the organization. Sales and Revenue Operations teams typically spearhead the implementation and support of these commercial digital applications.

Across all industries, our research indicates that companies who invest twice as much in digital tools as the norm are significantly more likely to meet their revenue targets and have 45% higher revenue growth than those who merely track the market. The additional 0.4% of investment can easily lead to a 500%+ return on incremental sales growth.

Part 4 of this five-part series will highlight the right percentage of core sales team attrition rate to acquire and develop key sales talent while minimizing sales team complacency.

To gain additional insight on this topic and more, sign up for the complimentary manufacturing and distribution virtual roundtables that are held throughout the year. 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: Rule of Five Series for Higher Growth and Profitability – Front-line Sales Managers per Core Field Seller

PART II: Rule of Five Series for Higher Growth and Profitability – Percent of Revenue from New Products 

Manufacturing/Distribution Leaders: How We Help

Research Participation: Manufacturing & Distribution Industry Trends

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