Growth Tip #5 – Take A Detailed Look at Markets to Spot Growth Opportunities
In the first installment of Growth Tip #5 we introduced the OREO Analysis framework as an important tool for understanding points of leverage for improving sales growth. You may recall that OREO analysis dissects the components of market share to better understand what is required to achieve greater market penetration. OREO analysis is based on four fundamental questions:
- Do you have the right Offer?
- Are you Reaching the customer?
- Do you present a compelling Economic reason to buy?
- Are you achieving the right Outcome?
This installment of Growth Tip #5 will expand upon a second valuable tool we call Win, Grow, Own (WGO) analysis. When used together, these two analytical frameworks can remove much ambiguity from strategic deliberations and focus discussions and design efforts on initiatives that can deliver the greatest impact.
Part 2 of 2: WGO Analyses
WGO analysis identifies the provenance of revenue dollars to develop a detailed understanding of how revenue changed between last year and this year. As we will highlight below, this analysis can be performed at the top-line level or with more detail at the territory or sales rep level. We have also witnessed some companies use it with products. The knowledge gleaned from the analysis helps identify whether growth is occurring where and how you planned. It also helps to identify best practices, leading performers, lagging performers and reasonable benchmarks.
At the most basic level, revenue comes from three sources: (1) recurring business with existing customers that you retain or “Own” year-over-year; (2) new business with existing customers that represent “Growth” within existing accounts; and (3) new business with new customers that represent incremental customer “Wins” for your company. Let’s take a look at the example below to further illustrate how one can begin such an analysis of top-line revenue. Begin by assuming that previous year’s sales were $10 million and that this year’s sales finished at $10.72 million. How did this growth come about and, equally importantly, could it have been greater?
The first thing that might stand out is the $2.35 million of customer “churn” experienced. Some of this non-recurring business may be natural; i.e., there always has been and always will be a certain number of one-time buyers. However, if this “churn” can be minimized with effective customer retention strategies, then the company stands much closer to achieving year-over-year sales growth.
After accounting for “churn,” chances are that there will be a certain amount of business maintained at the same levels year-over-year. This is business that the company “Owns” and forms the foundation upon which revenue growth is built. It is important to recognize that recurring revenue is very efficient as the majority of sales expense has already been incurred. Accordingly, maximizing the amount of owned business by reducing “churn” is an essential growth component.
If the company has good relationships with its customers, it is positioned to sell more products and services into these relationships and “Grow” its share of wallet within those accounts. This strategy is also very efficient in that the company is further monetizing its existing customer relationships and brand equity and sound account management strategies yield attractive returns. Interestingly, we recently completed a survey of C-level executives and sales leaders and found that selling new products to existing markets was going to be the dominant growth strategy in 2011. Given this, WGO analysis assumes greater importance as the analysis helps organizations spot growth themes to better understand who is adopting new products and why and improves targeting.
Finally, hunting to “Win” new customers is an exciting way to grow sales and one that captivates the imaginations of many sales teams. The challenge is that Winning new business is less efficient than Owning or Growing revenues as it is expensive in terms of time and associated sales expense. It also typically carries a lower probability of success. Although Winning new business is a worthy pursuit, sales leaders must carefully balance such efforts with Owning and Growing strategies; the classic hunter/farmer dichotomy.
Practical Application
Clearly, WGO analysis is an essential tool when deciding the appropriate mix between customer retention, account management and new business development efforts. The analysis also proves helpful in setting performance targets for each of these respective strategies and measuring performance against these targets. Additionally, we recommend carrying WGO analysis beyond the aggregate top-line revenue and applying it to geographic territories, individual sales reps and at the product-level.
Let’s take a look at how the WGO analysis can be applied to sales reps. The table below further breaks-down the revenue analysis we initiated earlier by analyzing the contribution of individual sales reps. What’s valuable is that this WGO analysis evaluates not only revenue contribution but also profit contribution.
As one can see, this level of detail and analysis offers terrific insights on which reps are leading performers and which reps are lagging performers. Sales leaders can build upon these insights to identify best practices that can be used to refine strategy and tactics. This knowledge also empowers sales leaders to define credible performance benchmarks that are supported by fact versus being simple “wet finger in the wind” aspirations. The implications for coaching, training and personnel decisions are apparent. For instance, a sales rep may be terrific at account management and have leading performance on Owning and Growing accounts. However, this rep may have weak performance in Winning new business. Given this, the rep’s sales manager may decide to refocus the rep’s time and efforts on managing and growing existing customers and assign new business development responsibilities to somebody else on the team with strengths in this area. There is a possibility that the findings may lead sales leaders to decide to divide roles, responsibilities and hand-offs such that a portion of the team focuses strictly on retention and account management whereas the others assume pure hunting and new business development responsibilities. There are many possibilities on how to utilize this information to improve sales performance.
At the end of the day, strategic decisions must be supported by as robust a fact base as possible. However, in today’s dynamic business climate, executives and sales leaders are often overwhelmed by large volumes of ambiguous and seemingly contradictory data. OREO and WGO analysis are two powerful tools that can cut through the fog to ground strategic direction in the most powerful and impactful growth themes and initiatives.
For more insight on developing and implementing growth strategies, please visit us online at www.evergreengrowthadvisors.com or contact Tom Knight and Erik Birkerts at 866-549-3191 or via email at info@evergreengrowthadvisors.com