It is often said that aside from its brands, people are a company´s most valuable asset. Over time, numerous examples of successful companies have shown this to be true. I would only add that people with the proper information and a common purpose, are not only a valuable asset, but become an outstanding competitive advantage.
Computers have changed the way we conduct business and are found in all areas of most companies. Available hardware and software make them indispensable tools for the many areas which require instant communication and controls. Specifically, the field sales organization receives and sends vast amounts of data through sophisticated handheld devices. Administrative sales functions such as invoicing, credit and collections, shipping statistics, salesmen compensation figures further add to the data found in the organization´s computer network.
Internal networks have made it very easy to transfer data to all areas. Every department can easily develop its own reports and controls, many of which are only used within the area that generates them. There is absolutely nothing wrong with this. Nonetheless this practice does not exploit the full potential of all the figures and statistics that are generated by the widespread employment of increasingly powerful hardware and software.
Turn Data into strategic information
Top management must recognize that the data that is constantly generated through normal sales operations is a valuable financial asset.
A second realization is that data does not transform into strategically significant information by itself. Unless management invests time and effort to identify, structure, and transform data into information, it will remain as data, a source for departmental reports and controls.
Strategic information is a valuable tool to construct and communicate companywide objectives. It provides a common parameter to measure results and promote sprit de corps among the areas which are working to those key objectives.
Nowhere is this more tangible, than in the Commercial Area. The commercial function is a team effort with direct involvement, among others, of the following areas: Marketing, Sales, Trade Marketing, Category Management, Shopper Marketing, and Accounts Receivable. It is one discipline that has a direct impact on the company´s profits.
A way to cash in on the financial value of all the sales data, in a simple and effective approach, is to make Profit per Client the focal point of the commercial operation. The Profit per Client strategic information should be a simple report that will measure this result over time. The structure of this report must incorporate all the elements which are of interest to the areas associated with this key objective.
The Profit per Client Information
The Profit per Client analysis must include the following for each client and SKU in the product line
Gross Sales minus Discounts and Allowances to obtain the Net Sales figure for every SKU.
Product Costs. Use the average product unless a specific cost can be assigned to an identifiable client (special formulation, packaging, etc.)
Net Sales minus total identifiable cost will provide the Gross Margin. The sum of all SKU margins will provide the product line Gross Margin per client.
All identifiable Point of Purchase activities which can be assigned to a specific client (Promotion costs, Shopper Marketing activities, Special exhibition material, etc.)
Total distribution cost (Freight and handling) can be deducted from the Total Client Gross Margin. Similarly the financial cost of average monthly accounts receivable.
The importance of the above variables will vary from industry to industry, the key point to remember is that you must take into account the variables you would include in a Cost to Serve analysis.
The final result is Profit per Client
As you can see the Profit per Client reflects the activities and efforts of all the areas involved in the final result. Sales can improve profitability by increasing the net sales figure, by ensuring that the product mix includes high margin SKU´s, by obtaining the highest benefit of sales support activities, maintaining account receivables under control, etc.
Trade Marketing must ensure it receives highly effective materials to support product turnover, avoid out-of-stocks and ensure the proper product mix, on a per store basis etc.
Shopper Marketing, in conjunction with the Client, must develop programs to meet shopper expectations and increase turnover at the point of sale.
Combined with external competitive, Marketing will benefit from in-depth, detailed information that will allow them to develop products that meet the market demands. It provides instant feedback to evaluate marketing activities, exploit strengths and minimize weaknesses. The report will allow them to track product performance and success of marketing activities over time.
The Profit per Client report must be flexible so that it can be grouped in a way that meets the information and control requirements of all users. Normally Trade Marketing needs information on a store by store basis, Shopper Marketing needs information by store chain and geographical area, Sales may need information by major client grouped by sales area. Etc.
The information must be produced on a monthly basis so that you can track performance over time and relate it to external factors, primarily competitive activities.
Providing a single performance measurement has exceptional benefits for any organization which is willing to invest the time, effort and money to implement it.
- It provides focus. Companies are constituted and organized to make money. Providing the monthly Profit per Client results is a constant reminder of the commercial organization´s reason for being.
- Although each area will concentrate their attention to the information that has a direct connection to their basic function, having access to all the information which relates to profit, generates important synergies. It provides all areas with the “big picture” and a means to visualize how their specific functions and efforts impact on the final objective.
- A common objective and the ability to see how and individual and departmental efforts contribute to the final result, promotes coordination and team spirit.
- The Profit per Client analysis provides an invaluable source of information to all levels of the organization. Top Management receives an additional input to decide among investment choices. Middle Management can use the information to customize plans and the field personnel can apply the information to achieve Point of Sale excellence.
Companies are constantly striving to find a significant advantage in order to overcome their competitors. It is rare that a company can maintain a technical product advantage for very long. The widespread availability of technical improvements even out the playing field in a short time.
Turning internal sales data into strategic information can be turned into a competitive advantage without undergoing extraordinary risks and expense. The raw material is already available. Investing in the development of a strategic information area which can go from a single person to a department can result in many of the benefits mentioned above.
If this does not exist in your organization you are wasting a valuable asset.
All opinions expressed are those of the author. Strategy Business Group Blog is an independent and neutral platform dedicated to generating debate around the key topics that shape global, regional and industry agendas.