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How to Build a World Class commercial process through Margin Excellence

If you are a commercial lead, you likely already have a relentless focus on margin, but do you have the visibility to give you, and your sales and operations teams the information to make the best decisions?

This insight explains the unlocked value in margin excellence and how this approach can be used to gain a competitive advantage in any challenging marketplace.

Why is margin important in the current climate?

For many companies achieving sustained profitability is becoming ever more challenging. Headwinds remain as companies look to recover from the impact of the global pandemic and other macro-environmental changes, resulting in a playing field of increased market volatility. Now that persistent inflation and rapidly rising costs are adding to the challenge, companies are looking for innovative approaches to increase their profitability.

A crucial starting point for many companies is gaining a firm hold of operating cost to maximise competitive advantage and increase profitability. This can be achieved through an Operational Excellence programme, carefully designed to take a detailed look at all operating expenses. High pareto costs are then targeted through the deployment of structured cost reduction teams.

Although this is a traditional starting point for profitable growth, competitive advantage can also be gained through commercial excellence and the successful implementation of pricing strategies on revenue and profit. Many companies take a siloed approach to pricing, where the profit margin on each sale varies significantly between team members and is based upon the individuals capability to interact with their customer base. The result of this behaviour is a large spread in profitability, with often some sales returning a loss.

This large spread in profitability provides an opportunity to significantly increase profit margin for those companies in the know. By providing commercial teams with the insight to set a clear sales strategy and connecting this with every sales representative, Sales teams become empowered to maximise the value of each sale, increasing revenue through sales.

The value of Margin Excellence

For optimised profitability, improvement should be made from both revenue and cost perspectives. A Margin Excellence approach ensures that an Operating System is embedded to direct your effort on the margin contributor that has the greatest financial impact.

For companies embarking on a margin excellence journey, the growth in profits is significant. A 1% increase in revenue typically results in an 5% increase in profit. The figure below shows the impact of increasing revenue on profit.

Impact of revenue on profit margin

Find out what value Margin Excellence could offer your business

How to start your journey

Your organisation maturity dictates your starting point. The higher the maturity, the deeper and more complex these models can be – but…complex doesn’t always means better; sometimes the simplest solutions are the best. The margin excellence operating system is visualised in figure 2. This shows EFESO’s 4 step approach to creating visibility in your commercial process to arm your team to make the optimal decisions for your organisation.

Overview of Margin Excellence Operating System

To figure out your starting point, we have also developed a free maturity assessment to baseline your organisation current capability and to prioritise the activites to close any gaps.

We can help you design a world class approach with you.