The Chief Revenue Officer (CRO) role has been a staple for almost two decades in high tech manufacturing environments. But does it also apply to traditional manufacturers? Short answer: yes. Slightly longer answer: it depends. Let’s find out why and if it makes sense for your manufacturing company.
Manufacturing, in particular, has a distinctly different approach to revenue than retail or professional services. The distinct lens that the CEO of a manufacturing company looks at revenue through shapes everything from the metrics they track to the operational initiatives they support.
Manufacturing: A Unique Focus
It may sound a little bit obvious to say that a manufacturer’s focus is, indeed, manufacturing. However, that fact is crucial in understanding how manufacturers approach revenue.
In manufacturing the goal is to make the right amount of the best possible product at the lowest cost and sell it at the highest price. A constant focus on profit margin drives their decision-making and strategic planning. Traditionally margin is improved by the efficiencies that a manufacturer can gain internally by reducing costs or expenses. Manufacturers place their emphasis on lean principles, industry 4.0, IoT, robotics, and other initiatives to improve production efficiency to maintain competitive pricing in the marketplace and maximize profits.
What they generally do not do, however, is approach revenue strategy from a customer-centric perspective or allocate resources to sales and marketing to increase profitable revenue. Instead, most small to mid-sized manufacturers underfund these areas, relying on their staff of outside sales reps or business developers to generate revenue. Often there is no involvement of other departments to ensure customer retention, appropriate messaging, or brand integrity. The problem is that this approach does not include enough of a focus on generating profitable revenue. The result is a strategic gap that can cause a company to fall behind their competitors.
Revenue Challenges in Manufacturing
Manufacturing operations can look different across sectors, such as healthcare, biotech, hardware, software, furniture, or automotive. But all manufacturing shares the common thread of making something. As such, they all share the same types of challenges regardless of what the specifics entail.
The most common types of revenue challenges in manufacturing include:
- Supply chain disruptions - creating delivery delays and higher costs
- Labor shortages - causing extended lead times and higher costs
- Changing labor laws – may increase labor rates and administrative expense
- Tax law changes – may reduce profitability and increase financial expenses
- Leveraging new software – increasing training requirements and may impact quality
- Keeping technology current – may require additional product and production innovation
- Cybersecurity threats – risk of shuttering entire operations
- Finding qualified leads – new customers are required to grow the company
All these challenges are also production challenges for traditional manufacturers. When seen through the traditional manufacturing lens they are impediments to efficient manufacturing.
The CRO sees them through the lens of profitable revenue generation. While this distinction may seem small, it results in downstream solutions that directly impact a manufacturer’s profitability.
Instead of focusing on production, this list causes the CRO to wonder:
- How do we strengthen our relationships with our existing customers to keep them?
- Are there other markets we should tackle?
- How can we leverage digital marketing and sales technologies to retain and attract customers?
- Do we know what we should do to fine tune our products to meet our customer’s needs?
- Does everyone who is customer facing know the sales processes and “speak the same language”?
- Have we established the right internal systems to create the best possible customer experience??
These challenges have become even more difficult to manage over the last year and a half because the pandemic exacerbated many of the things that manufacturers were already struggling to control.
Complicated supply chains were disrupted, causing global ripples that still have not been resolved. Outside salespeople were forced to change their approach entirely when they could not get their foot in the door with potential buyers. B2B organizations had to adapt to a dramatic shift in buyer priorities and respond with new selling strategies. All the while, an ongoing labor shortage has left many employers resorting to bonuses and other incentives to get new employees in the door.
Many manufacturers in this space are also having trouble figuring out what the federal vaccination mandates mean to their business in terms of compliance costs and logistics, adding a new wrinkle on top of existing labor issues.
The result is a perfect storm of manufacturing revenue challenges.
Overseeing Manufacturing Revenue
Even without a dedicated CRO role, someone is responsible for revenue. Typically, in manufacturing this will be the CEO or VP of Sales. Manufacturers are often lacking a strategic revenue strategy instead prioritizing production efficiencies and cost management. This approach focuses on “lowering the water” when focusing on “raising the bridge” may serve them better instead.
Bringing in a CRO to Own Revenue
Many small to mid-sized manufacturers are resistant to the idea of bringing in a CRO to preemptively improve revenue because they are focused on the day-to-day management of margins to consider allocating resources to sales or marketing to improve profitability. Ideally, when business is booming manufacturers should be planning for future threats as part of their risk mitigation strategy. Realistically, as in many businesses, manufacturers are focused on the continued improvement of their products and processes, gaining efficiencies and reducing costs on the factory floor. Of equal importance is focusing on the outward manifestation of their labors – their customers, building relationships, refining their brand, and improving their digital presence.
If the pandemic has taught us anything it is that nothing is given, and the market can change at any time so your revenue strategy must be ready to face any number of challenges.
And during times of growth, a CRO can help a manufacturer focus on the future to help them continue their growth over the long-term by identifying their best customers and creating a strategy around selling more to them. As the Black Line Group explains,
“Analysts estimate that the top 20% of customers (ranked by profitability) generate more than 120% of company profits. Conversely, the bottom 20% account for more than 100% of losses. You can only find so many ways to optimize your channels and processes or decrease production costs. But having more profitable customers can improve your bottom line almost overnight.”
Regardless of whether a manufacturer is going through hard times or rapid growth, a CRO can help them add a profitable revenue focus to their product-focus to improve margins in both the best of times and the worst of times.
The Benefits of a CRO in Manufacturing
In every organization there is a constant pull between departments that should have similar goals but conflict over different objectives. For instance, in a tech company this conflict is between engineering (which is focused on how to make the hardware or software product) and marketing (which is focused on including every possible feature). When a manufacturer brings someone into the CRO role, they will look at the big picture to bridge the siloes within the organization to achieve greater effectiveness across the entire organization.
They will also increase profitable revenue by identifying the organization’s most profitable:
- Geographic areas
- Distribution channels
But the benefits of bringing in a CRO do not end there, other companywide benefits include:
- Developing clearer sales processes
- Understanding true costs
- Creating efficient pricing strategies
- Launching new revenue initiatives
- Improving customer satisfaction
These benefits can be realized quickly if the right kind of resources are put behind the CRO.
Manufacturers can accomplish this shift in perspective themselves, but it will be hard to maintain without the CRO’s voice in the conversation. Does it make sense to include a CRO in your manufacturing company? The long answer: yes. It will improve profit margins, build brand loyalty, and open new markets.
Ready to begin thinking about revenue for your manufacturing operation in a new way? Download your copy of my Revenue Development Action Plan now to learn how to build more strategic, profitable, and sustainable revenue!