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.
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.
And Part 3 highlighted the importance of investing 0.8%+ of revenue in digital tools for commercial functions to gain a higher return on incremental sales growth.
Part 4 will focus on the fourth rule in detail. The last rule, Part 5, will be explored in a subsequent article.
What are the five rules of above-market valuation?
Alexander Group research shows that high attrition rates of 15% – 20% can indicate barriers to acquiring and developing key sales talent, resulting in inconsistent coverage for top customers. High attrition rates also correlate to misalignment in sales compensation, territories, workload and management. Low attrition of less than 5% can indicate complacency and lack of focus on critical growth strategies.
Top performers focus on new growth drivers that include new products and solutions, sales and digital channels, and selling roles. Hiring strategies include hire-to-retire programs for core commercial roles that require active recruitment with two or three year hiring plans through multiple channels. Consistent, 18-month training and development programs for all positions, supported by ongoing talent assessments and rigorous performance metrics, are also critical to a well-developed sales function.
Growth drivers, recruitment, training and talent development strategies lower attrition rates, lower sales costs, and provide moderately higher growth.
Part 5 of this five-part series will highlight the right target of core field sellers per revenue (sales, commercial) operations resource to achieve a lower expense-to-revenue ratio and higher year-over-year revenue growth.
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.