The question many businesses first ask when seeking to expand is how do we increase sales volume? Whilst this is a valid starting point, commercial effectiveness means not just assessing how volumes can be increased, but how customer relationships can be deepened, how strategic revenue streams can be developed, and how pricing strategies can be implemented to create better returns.
Commercial effectiveness is a vital facet of a healthy business, not only does it help achieve top-line growth, it increases performance, predictability and improves the quality of earnings.
However it must not be limited to simply expanding sales and increasing volumes. Deepening customer relationships and developing strategic revenue streams and pricing strategies are also important elements of commercial effectiveness.
Cloud Technology Solutions (“CTS”) provides cloud migration and management to customers through proprietary software and managed services. Following a strategic acquisition early in to our partnership, the business operates as one of the largest ‘full stack’ capability Google Cloud software and services providers across Europe.
A key driver of value creation was the development of the Cloud M platform, a proprietary SaaS technology that allows users to migrate, manage and secure their digital workplace as well as utilising the benefits of cloud-based collaboration platforms. This provides the business with a recurring revenue stream, delivers sticky customers and further improves the quality of earnings.
Since its launch, it has had great momentum – and we’re not done yet! Watch the video to find out more:
Clearly Drinks is an independent soft drinks company, which principally manufactures a range of sugar free branded flavoured water products, as well as providing contract bottling, and more recently canning, for third party partners.
Since our investment, we have been working with the team to transition the business away from lower-margin historical co-pack contracts towards higher-margin contracts alongside stable of brands.
Watch the video to find out more:
We worked with Utiligroup, a leading data management software provider and managed services provider to the UK energy sector and one of our portfolio companies from 2014-2017, to re-engineer its commercial model.
Utiligroup had already established a strong market position through its high-quality software and highly skilled management team. By providing additional support to the management team – growing it from a team of two to a team of nine – we were able to help them unlock capacity to capitalise on growth opportunities – including the then nascent independent energy supply sector. Crucially, we invested in its R&D function, launching a number of new divisions to create cross-sell and up-sell opportunities, and we worked with the team to develop a new proposition for its managed services offering – transitioning to a SaaS model.
Not only did this support the business’ growth in the three years partnering with NorthEdge, it helped the business to deepen customer relationships. This approach also set the business up for continued growth beyond our exit of the business.
Investment driving commercial performance
There are numerous ways businesses can improve commercial effectiveness using a smart investment strategy. For example, creating a digital marketing strategy that improves awareness of your business and its services among new audiences can help grow your customer base; as can implementing a new CRM system that fosters deeper relationships.
To really prepare for growth though, businesses must also interrogate the mechanics of the commercial model, align teams and put the customer at the heart of the plan.
Improved effectiveness can be driven by changing the sales operating model – shifting from a more transactional approach to contracted and recurring revenues, implementing a strategic pricing strategy, or changing the way business development activity is organised and incentivised.
Changing any of these things is a challenge and requires internal buy-in, which is why driving commercial effectiveness also requires a focus on culture. Sometimes, this means seeking out new talent to ensure that management teams have the right people in the right roles at the right time to maximise growth.
Underpinning all this work is a focus on the customer – defining what a successful customer looks like for your business, understanding what generates value and helping them reach their desired outcomes.
Organisations with tightly aligned sales and marketing functions enjoy 36 per cent higher customer retention rates and 38 per cent higher sales win ratesMarketing Profs
Defining customers for growth
Defining a successful customer is all about understanding the basics. Looking at payment terms, whether customers will add services over time, and profitability of relationships will help teams to identify what makes a ‘good’ customer. Once you’ve defined this group of customers, you should consider how you attract more of them.
Tim Hillier, principal consultant at SBR Consulting, who works with businesses to redefine their sales strategies says: “While this may feel like an obvious starting point to achieve growth, many firms struggle to dedicate time to evolving their customer acquisition strategy in this way because they spend too much time chasing every piece of work under the sun.
“We help businesses to identify their ideal client profile and work with them to completely transform their sales process to target alike customers in a repeatable and scalable way to drive sustainable business growth. This includes segmenting clients through identifying potential, along with current performance, allocating sales resource appropriately and embedding the correct behaviours, empowering the team to execute on the sales strategy.”
Effective pricing strategies and tactics can deliver a 2 to 7
per cent increase in return on sales
A strategic pricing approach
As well as reviewing opportunities to target ‘good’ customers, an often-overlooked area to achieve growth is strategic pricing.
When thinking about value creation, businesses are often tempted to focus on what they know. As costs are a known quantity, optimising is often a straightforward process. However, in isolation it can create its own risks and hinder businesses reaching their full potential.
Value is a simple equation that is linked by price, volume and costs. If only volume and costs are considered when planning for growth, a large portion of value creation can simply be missed.
Pricing strategies are often a mixture of art and science, involving every part of the business. And, because it is dealing in unknowns many businesses naturally shy away from it.
James Brown, managing partner at Simon-Kucher Partners, works with businesses to redefine their pricing strategies says: “When it comes to pricing correctly many businesses fall into one of three categories. They either benchmark themselves against competitors – meaning that they are allowing competing firms to dictate a huge part of their value creation, add a margin on to cost regardless of how much the customer is willing to pay – meaning they likely leave either money or volume on the table, or they simply gauge price based on a gut feel.
“Either way they risk being too expensive for some customers or too cheap to generate value from others. Smart pricing strategies are based around aligning price with value, and differentiating the price and the offering to meet differing customer needs. For instance, being able to scale up or down services depending on the customer’s budget.
“While it can appear like businesses have to step into the dark to assess how pricing can impact their business, there are a range of ways to mitigate risk. Analysing price achievement, talking to customers about how they get value from your product, and running trials and tests allows businesses to adapt their pricing and know how it will impact volume and margin.”
Pricing strategies needs to include ways of ensuring that they can adjust to various customer needsJames Brown, Managing Partner UK, Simon-Kucher Partners
The role of private equity
To generate value through commercial effectiveness, private equity support can play a critical role. In addition to funding to make step-changes in commercial effectiveness, our partnership with management teams brings an outside perspective and years of expertise in growing businesses, supported by our network of specialist partners. We work in partnership with management teams to ensure the commercial strategy is aligned to both the objectives of the organisation and the customer, driving top-line growth, and delivering a better quality of earnings.