Metrics are Key
As we have discussed, identifying the areas your business may be experiencing operational inefficiencies is the first step to adjusting practices within your business. However, to fully inform your operational strategy, it is key to take a thorough look at financial and operational metrics.
On this page, we will discuss a goods producing client with a commission based sales structure. Furthermore, this client was looking to expand their monthly sales and understand the effects this expansion would have on operational capabilities.
Where CPN & Associates Started
Our team began by identifying variables in the commission structure; specifically when commission was recorded. While analyzing company finances, we found that commission rates, as a percentage of sales, were higher than the business owners realized. In altering the commission structure, it was determined that the company would be able to reallocate resources towards the proposed sales expansion over the next quarter.
As a result of the initial analysis, we determined that the current staff capacity would not be sufficient to accommodate the expansion. Additionally, the business did not have the financial resources to hire another sales person. As a result, we recommended the following two solutions:
a.) Repurpose the sales manager to add sales to his administrative tasks.
b.) Cut costs in other related areas to produce more income over time for hiring new staff.
Solving the Problem
Our team understood that operating expenses needed to be reduced in order to accommodate expansion. Namely, the team found that consolidating current marketing and web service suppliers would reduce expenses. Non-discretionary office spending was also responsible for diminishing operating profit. What is often an easily budgeted expense needs constant surveillance.
These financial based operational decisions helped the company to allocate resources more efficiently. Addressing their commission structure and expense issues will allow the business to hire an additional sales person in less than three months. We hope you enjoyed this example detailing how solutions to your growth barriers can be implemented by analyzing your finances!
CPN & Associates LLC is a Business Consulting Firm offering strategic business reviews, analytical financial reviews, operational management, and many other small business services.
