It is almost axiomatic that growing profits will require increasing sales and marketing expenses at the same rate. Most sales and marketing leaders believe in their bones that their teams will not be more productive in the long run. Teams can find cost reductions and efficiency gains, yes, but not full, sustained productivity gains. This is a harmful, self-reinforcing belief – and our research shows that it’s not necessarily true.
The metric we focus on is called “commercial productivity,” which measures revenue (or gross profit) returned per dollar of commercial cost, and then evaluates how fast revenue growth is relative to sales growth and marketing expenses. We want to better understand if there is truth in the managers’ belief that it is difficult to drive continuous improvement in commercial productivity over time, so we conducted a study.
We analyzed 1,254 publicly traded companies in 10 industries worldwide from 2017 to 2021. We found that across industries, the average company had flat commercial productivity in any given year , with revenue growing at the same rate as selling and marketing expenses. About 19% of companies improve commercial productivity more than 10% in any year, but most eventually turn it back. Only 5% of companies achieve commercial productivity in three out of four years.
These elite companies – the sustained productivity leaders – reap another huge benefit. They achieve a higher annual total shareholder return (TSR) than their peers, with a 12% difference, on average. TSR’s advantage ranges from 21% points in logistics and transportation to 4% in paper and packaging.
Our research has identified common approaches that attempt to improve commercial productivity that are destined to fail or, at best, perform poorly. One approach involves focusing on costs alone, which inhibits longer-term growth. In other cases, companies rely heavily on the latest sales or marketing software or unproven artificial intelligence tools, then see costs grow without corresponding growth in revenue. Others may make unreasonable productivity gains in their plan without a visible path to achieving them, which can lead to sales reps missing goals and quitting.
Productivity leaders do things differently
Our research found that commercial productivity leaders systematically pursued, over a period of years, levers in three areas. They refined their go-to-market model. They maximize the productivity of the front line, striving to make every rep an A player. And they know the efficiencies of sales and marketing support.
Refining the go-to-market model.
It involves an assessment of how to deploy sales and marketing capacity against opportunities that will yield the highest return. Too many companies rely on outdated sales data and an outdated coverage model to determine how much they need and where to assign them. These coverage models tend to rust in place, reducing the sales and marketing organization’s return on investment.
It is more effective to balance account assignments based on the expected spending of future customers, creating the most suitable territories for each seller. Leading companies are adjusting their customer segmentation and reassigning customers to more profitable routes to market, using lower cost coverage, such as inside marketing, outside roles in coast, and e-commerce as appropriate.
Turns every rep into an A player.
To increase the productivity of individual reps on the front line, companies can call upon several tactics. One is to create data-informed sales plays – a coordinated set of sales and marketing activities with target accounts, including customized sales collateral and tracking to ensure that those reps focus on the highest value opportunities.
Consistent training and coaching can also help shorten rookie ramp-up time and improve veteran performance. Bain’s research found that top-performing reps had more frequent and higher-quality interactions with their managers than lower-performing reps, such as weekly one-on-ones. session and regular pipeline checks.
Make sales and marketing support efficient.
Running a lean support team can generate significant savings or free up operating costs to be applied to customer-facing sales activities. Optimizing support spending requires finding the right digital and automation tools that simplify complex processes. Additionally, other tactics include improving the accuracy of quotas for individual reps (set by the support team), reducing spans and layers in the organization, and exploring nonselling and non-quota-carrying. papers.
Productive leaders systematically implement tactics from each of these categories. Consider how a computer app security provider refined its coverage after annual revenue growth slowed from about 40% to less than 20%. The company expanded the number of customer segments and created more tailored sales activities for each segment. It re-establishes sales territories based on the total addressable market, each customer’s propensity to buy, and customer characteristics. These and other moves have allowed the security provider to achieve more than a 10% increase in commercial productivity in three out of four consecutive years.
Other companies have embarked on similar journeys to unlock commercial productivity. A multinational food packaging company began to change its go-to-market model through several tactics. This includes resegmenting customers based on opportunity and service needs, increasing the use of lower-cost routes to market such as inside sales and e-commerce, and integrating specialized resources across world.
Design and redesign
Aside from continually revisiting a proven set of levers, what really sets productivity leaders apart is that they take a deliberate and iterative approach to implementing change. . Their approach has several organizational dimensions.
First, they assign a clear owner of commercial productivity, usually with a dedicated role. This executive often reports directly to the chief revenue, financial, or operating officer, and has dedicated program resources. The staff helps create a backlog of tactics to implement, drive progress against each, and help change processes and behaviors at every level of sales and marketing.
Veteran productivity leaders also tie commercial productivity targets to annual and multiyear planning, so the effort extends beyond the sales team. To that end, the CRO, CFO, and COO must regularly communicate clear productivity issues. Revenue and sales/marketing cost targets from the CFO should reflect the expected productivity gains of the sales and marketing organization, along with a clear set of tactics to achieve these gains. And the multiyear commercial productivity roadmap should dovetail with the IT roadmap so the company can plan the necessary technology investments.
Finally, a mature commercial operations team is essential for modeling sales and marketing capacity, communicating with the finance team, and creating go-to-market blueprints that are continually updated. The operations team ensures that tactics are always in play across different geographies and lines of business.
The right questions to ask in a development
CROs, CFOs, and COOs committed to maintaining their productivity gains will want to answer a set of high-yield questions:
- Does our organization know what factors drive commercial productivity and whether we are at, above, or below our targets?
- Where do we need to increase productivity – and to what level – next year, three years, five years from now?
- What tactics will combine to set a realistic path to the targets?
- Do we have the right structure, operating model, and senior leaders engaged to make these gains?
- Who is responsible for realizing the gains? Does he have proper reporting and communication mechanisms with leaders in finance, HR, and other functions?
Sustaining commercial productivity gains can provide benefits for companies in any industry and at any stage of the economic cycle. But it is more relevant to the current macroeconomic conditions, because the downturns are reordering the board. During the 2008–09 recession, the Bain analysis found, performance varied significantly among nearly 3,900 companies around the world. The winners pulled away from the losers and widened the profit and market-cap gap during the next expansion.
The same logic applies today. A commercial productivity framework forces companies to make healthy trade-offs between top-line and cost savings actions, trade-offs that will help them outpace their competitors in the years to come. .