Feb 16, 2023

How High-Tech Companies Can Defy Macro Pressures; Grow Revenue & Margin

An inauspicious start to the year has been especially troubling for high-tech manufacturing, software and services companies. In this article, we uncover how AI and data science can help companies capture more margin and revenue despite external economic challenges.

High-Tech at a Crossroads

High-tech companies are accustomed to being first. They often set the trends and lead the disruption of the wider business community. Unfortunately, it’s now the sector getting disrupted by a precarious economy first - or at least the most visibly – in 2023.

According to industry tracker layoffs.fyi, more than 200,000 tech employees have been laid off since the start of 2022. “Alphabet to let go 12,000 employees amid broader tech layoffs” is the type of headline sending ripples throughout the industry in recent weeks.

The uncertainty in the economy right now is a universal burden, but high-tech firms that have spent more than a decade riding the wave up are suddenly faced with tough decisions and sizable threats to the top- and bottom-line.

It’s in times like these when errors of the past quickly reveal themselves. Poor pricing strategies and sales inefficiencies are easy to ignore or paper over in boom times. That air cover has now receded. The good news is there are existing pockets of revenue and margin improvements that already exist that high-tech manufacturing, software and services providers should lean on today.

With the U.S. Federal Reserve planning additional interest rate hikes, this young year’s rough seas are likely a sign of more uncertainty to come. So, let’s take a look at opportunities to wrest back control, and thus bring certainty back, to your commercial execution strategy.

What Levers Can High-Tech Companies Pull to Grow Margin?

Much hay has been made about the negative impact on tech stocks as profitability is in decline, after more than two years of soaring corporate profits. “Worries are rising that corporate profits are set to shrink broadly because of a slowing economy and still-rising costs amid high inflation,” reports the Associated Press.

It’s true that myriad factors are reversing margin gains; frustration mounts when factors outside of the organization’s control are the culprit. However, there is an opportunity to look inward to fix the areas of margin leakage that are entirely within your control. At Zilliant, we have analyzed billions of transactions to benchmark recapturable B2B margin loss that can be addressed by sharpening pricing processes and capabilities.

We found that up to 17.1% of annual margin – a glaring amount – is consistently lost or left on the table regardless of market conditions. The causes are threefold: inconsistent pricing, misaligned market pricing, and inefficient pricing.

Take action: Compare your performance against benchmark data with our interactive tool

It may not seem like it at first glance, but this is good news for high-tech companies that are struggling to maintain profitability in a challenging environment.

It means there is action to be taken, independent of the scary economic headlines, to quickly improve margin performance.

Consider the example of a large chipmaker who found its legacy system of price management was ill-equipped to execute price moves in a rapidly fluctuating cost environment during recent supply shortages. Not only did it struggle to operationalize these price changes, but it also lacked the capability to dynamically update its prices in alignment with the market. Too often price changes were slow to be rolled out and misaligned to boot.

The company implemented the leading AI-driven price optimization solution, Zilliant Price IQ®, to comprehensively consider all factors that influence price and dial in pricing strategies for each customer. It also leveraged Zilliant Price Manager™ to automate its discount-from-list framework to align with the market and clean up inefficiencies in the pricing process. Within the first six months of go-live, the chipmaker increased margin from price by $12 million.

Where is Hidden Revenue Opportunity Lurking?

We have also recently benchmarked the state of sales and revenue leakage in B2B. Like the pricing problems we uncovered, we found that sales organizations are missing opportunities to retain and take share.

Specifically, on average B2B companies are missing between 7% and 32% of annual revenue due to customer churn and uncaptured cross-sell opportunities. The missteps can’t be chalked up to incompetency or a lack of trying. It’s simply that the methods that have worked for sellers for years are insufficient in today’s complex environment.

The emergence of digital commerce, the evolution of buyer expectations, the constant stream of volatility – these all conspire to overfill the plate of even the best B2B sales reps. On top of that, reduced headcount in high-tech means sellers are managing larger territories and more customer accounts than ever.

Thus, leading high-tech companies are embracing AI to identify and make actionable customer churn and cross-sell opportunities.

AI, Machine Learning & Data Science – Friend, not Foe

Let’s start with what AI is not. It’s not a replica of a professional human worker. Nor is it a ready-made salve that will make up for workforce reductions. When applied correctly to business-critical tasks, it is a force multiplier that helps over-burdened commercial teams do more with less.

One manufacturer found that its sales reps were unable to spend sufficient time servicing the bottom 80% of customers in their patch. By implementing the leading revenue optimization solution – Zilliant Sales IQ™ – the manufacturer was able to help its salespeople tap into previously unrealized sources of revenue gains. Sales IQ uses advanced data science to identify patterns that a human cannot, and thus directs the company’s sales reps to address customers who are showing early signs of defection and that are likely to make incremental purchases.

The result? An annualized increase of $5 million in same-customer sales.

Get in touch today to learn how high-tech companies can turn market-wide margin and revenue challenges into competitive advantages.

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