Insights
Profitable Growth in a Turbulent Economy
Why you can't cost cut your way to profitable growth
Growth is at the top of almost every company’s agenda. However, in our experience with hundreds of companies, we see that most companies (large and small, B2C and B2B) are missing opportunities to drive profitable top-line growth by doing a better job of connecting with their customers.
The pressure for growth is constant. The demand for consistent profitable growth is greater still. In the current turbulent global economy, with the increasing demands of the “always on” customer and the rise of new, agile competitors, profitable growth is arguably more elusive than ever. We see that many companies are feeling squeezed and have been trimming costs for years and yet they still aren’t seeing the progress that they need.
But you can’t cost cut your way to profitable growth. One of most common mistakes that most companies make is that they consider marketing and sales as an expense rather than an investment in top line growth. They fail to develop their marketing and sales capabilities to drive performance.
While there are often opportunities to spend sales and marketing dollars more effectively, the mindset must be on growth, responsiveness, agility and connecting with customers, not just cost reduction. We see several common areas for improvement.
The guiding principle for any sales operation should be to maximize the time for selling and relationship building. And yet, most sales reps spend less than half of their time actually selling. Often, when companies scrutinize how sales teams are really spending their time, they discover that the sales teams are spending the majority of their time researching billing issues, internal communications, internal reporting and chasing down answer to customers’ questions, and generally fighting fires.
For example, a healthy public company had an ambitious plan to increase revenues by 40% but they just weren’t hitting the mark. Moreover, the CEO complained that he didn’t have line of sight on sales performance or marketing spend. After a comprehensive study of sales operations, including ride-a-longs with sales reps, interviews with customers, sales managers and executives, we discovered that only 23% of their daily activity was spent selling because they were consumed with non-sales activities such as billings, firefighting and internal communications. Furthermore, managers were spending only 29% of their time coaching sales reps or meeting with customers. The company greatly expanded the role of the central Sales Operations department with clear control over sales and analysis, territory management, coverage models, training, on-boarding and recruiting. By reducing and reallocating non-value-added activities to allow sales to focus on revenue-generating activities, the result added significant incremental EBITDA over five years following the work. We find these results to be typical in medium to large companies, and yet few tackle the problem.
Most companies think that they know their customers, but in our experience, they rarely know them as well as they think. Even in today’s data rich environment, many companies are not using their data to drive insights into customer segments and behaviors nor do they align their resources to the highest value customer segments.
For example, a large casual dining chain was plagued with stagnant growth in a very competitive industry. They believed they had been analyzing the data to better understand their customers and purchasing behaviors. In fact, they had been focusing on the promotional data and actually had little insight into who their customers were and why they frequented their restaurants. After a disciplined analysis of purchase data and customer survey responses combined with feedback from in depth customer interviews, they had much more accurate insight into their customer segments and their experience journey. With these learnings, they redesigned their marketing and promotions to more effectively reach their customers with the right message at the right time. They switched from a broad-based media approach to a digital 1:1 strategy and quickly saw an increase in dining frequency while simultaneously reducing marketing costs. Within months, same store sales increased 3-4%.
It’s critical to understand who your most valuable customers are, treat them special and turn them into customer advocates.
A gourmet gift company was experiencing declining sales year over year and the CEO was understandably concerned going into the holiday season. Based on their belief that their target customer was a woman who bought gifts for friends and relatives, their “salesforce” was a seasonal call center that answered questions and took orders. Their marketing was an expensive direct mail campaign and advertising in women’s publications.
However, when they took a fresh look at their customer segments and customer profitability, they discovered a pocket of very valuable corporate buyers who bought large volumes of business gifts, not just at the holidays but year around. Without a specific strategy or dedicated resources, the company had been treating the corporate buyers the same as the individual customers. They had not pro-actively cultivated corporate buyers with products, services, and a loyalty program that rewarded volume purchases and incented referrals. After transforming their sales organization, processes, compensation structure to be better serve their corporate clients, they experienced almost 10% increase in profits.
The key to any successful sales strategy is to align the incentives to the company’s goals and priorities. The first question to ask your sales team is: What is our company strategy? Followed by: Can you explain how you get compensated for helping the company achieve those goals? In many companies, the answers would disappoint the CEO. But if you can’t articulate the company strategy and you don’t understand how you are rewarded based on those achieving those goals, then the compensation model is not driving behaviors that support the company’s objectives.
For example, a global energy company had experienced flat growth for several years. The CEO started asking some tough questions about sales rep performance and was disappointed in the answers. He had no visibility into sales performance metrics and the compensation plans had not been updated in over 10 years. When he dug deep, he discovered that the compensation plans were not driving desired selling behaviors and that in some cases they were actually rewarding negative growth! After redesigning the compensation model and implementing a new coverage model that elevated strong producers and eliminated poor performers, the results in the first quarter reflected a 10% increase in revenues and a 10% reduction in SG&A spend.
Many executives have a natural aversion to ‘tinkering’ with the sales force because they are concerned that it will jeopardize revenue. However, in many cases, the opposite is true. If you haven’t reviewed your sales organization, sales operations and compensation models in the last year OR if you have gone through a merger, acquisition or divestiture, then it’s time to review. Your sales and marketing strategies and organizations will need to evolve with the marketplace. If you aren’t reviewing at least annually, then chances are you are leaving money on the table.
Our business is to help you to grow yours. Clients trust Candela to quickly drive profitable growth through increased marketing and sales effectiveness and improved customer experience.
Ignite growth.
