Many companies are working on reducing their manufacturing costs in light of increased international competition. However, according to management consultants, the test for sales directors lies in reducing sales and marketing costs. These can be as much as 40 to 50% of the total goods price and therefore is a hot topic on sales training courses. As a result, small changes may have a considerable effect on profitability.
Marketing and sales costs are normally fixed close to manufacturing and are borne by the manufacturer, the market and the end-user/consumer. Particular changes in cost structure can be observed nowadays in the following four areas:
1. The costs of carrying out orders
According to studies the costs of carrying out orders are between £40 and £60 per order, irrespective of different branches of industry. It is not unusual for companies to carry out between 50,000 and 100,000 orders per annum. This massive cost block can be reduced in two ways: by reducing the number of orders; and by lengthening the delivery time, in order to cut back on the cost-intensive delivery of sub-orders.
Of course, it only makes sense to cut back on the number of orders you process, if you can increase the amount of each order. To manage this, it is necessary to pass some of the costs saved onto your clients in the form of discounts for bulk orders:
By using this method, many companies have managed to reduce their number of orders by up to 90% and thereby improve the economic efficiency of carrying out the orders. Pre-arrangement discounts can be utilized as an incentive to fix longer delivery times. Most clients would be in a position to make longer-term arrangements if they were to receive a more favorable price for their pains.
2. Cost of storage
The greatest savings can regularly be made by streamlining your storage capacity. Some manufacturers still keep two to three months production in storage, as well as a further two to three months production, which are stored on the market. Clients also usually keep a “reserve” of a month’s required stock, which means that all in all, as much as half of annual production is, at one time or another, kept in storage.
Just-in-Time manufacturing, which is criticized by many manufacturers as being labor-intensive and expensive, therefore offers the possibility of rationalizing your storage costs.
3. Sales department costs
Sales representatives frequently complain on sales training courses that they can spend up to 30% of their time dealing with problems which crop up during the processing of orders. They clarify delivery times for the customers, send reminders out about delivery times, etc. This is a massive waste of time and energy! The following suggestions should remedy this:
a. Computer-based order processing, which gives you data about the status of manufacturing and delivery at the push of a button.
b. Direct computer-link access to sales representatives via lap-top computers.
Moreover, nowadays businesses can no longer afford to pay a direct visit to every small-scale customer. This can lead to problems with some clients who for years have liaised with “their” sales representative. An alternative is to invite these customers to a trader’s conference once or twice a year and use this as a conduit through which to retain contact.
How high should the sales department costs be in relation to turnover? Some people believe the upper limit should be around 3%.
4. Service costs
Particularly high tech products, such as computer systems can require a remarkable amount of servicing. Nowadays, many companies throw in a service contract with the product purchased, so that the clients have a clear and calculable cost framework.
An increasingly utilized means of lowering service costs is the so-called “hotline”. If a client has a problem with his/her equipment, a service engineer tries to solve this over the ‘phone. For hotlines to be effective the technical experts manning them should be briefed in basic sales training and customer contact skills.