COST OF SERVICE - cloud.esker.com€¦ · How are you accruing for the spiff when hurtles are put...
Transcript of COST OF SERVICE - cloud.esker.com€¦ · How are you accruing for the spiff when hurtles are put...
AGENDA
BASIC MATH OF SERVICE
FOR A CUSTOMER
1 2 3
OTHER FACTORS IN
COST ANALYSIS
OTHER FACTORS TO CONSIDER
BACKGROUND
KEVIN STINNER, CCE, CCRA
CREDIT MANAGER | PINNACLE AGRICULTURE
12
YEARS IN CREDIT & COLLECTIONS
2015 NACM GATEWAY REGION
CREDIT EXCELLENCE
2017 NATIONAL EMERGING LEADER
PRESENTER, WRITER& THOUGHT
LEADER
DRILLING INTO THE BASICS
WIDGETS SOLD TO CUSTOMER
$1000
COST OF WIDGETS
$800
GROSS INCOME
$200
OPERATING COSTS
$150
YOU MADE
$50
RIGHT?
NOT NECESSARILY
TAKE CUSTOMER OUT TO LUNCH
$35
6 MONTHTERMS
$35
DELIVERY EXPENSES
$70
COMMISSION
$50
ACTUALPROFIT
$10
HIDDEN COSTS IMPACT YOUR BOTTOM LINE
GROSSPROFIT
$200
OTHER CONSIDERATIONS
COST OF CAPITAL
CUSTOMER’S RISK OF DEFAULT
POTENTIAL LOSS OF OTHER BUSINESS
SELLING EXPENSES
WHAT IS YOUR COSTOF CAPITAL?
What is cost of
capital?
Why is it important?
What about finance
charges?
Is there always an expense with it?
How do you
calculate it?
WHAT IS THE CUSTOMER’SRISK OF DEFAULT?WHAT COSTS SHOULD BE CONSIDERED FOR THAT?
Reserve for bad debt expense
How can you calculate it?
Specific reserve
Other considerations:TERM ACCOUNTS | B & LOWER ACCOUNTS PAST DUE AR | CREDIT CARDS
WHAT IS POTENTIAL LOSSOF OTHER BUSINESS?
Competitors
Unable to serve everyone every
timeSelling more
than you can get
SELLING EXPENSES
How are you recouping these expenses?
Can you offer more entertainment than the customer will spend?
(MEALS, ENTERTAINMENT, TRAVEL, ETC.)
Who all should be considered with the travel expenses?HINT: IT’S NOT JUST THE SALESMEN
LOSS LEADERS
What is a loss leader?
When is it OK to use a loss leader?
How can loss leaders backfire?
REBATES
How are rebates accrued?
Are rebates accrued accurately?
Are rebate numbers correct? (extra rebates)
How are rebates affecting your cost of goods sold?
SALES SPIFFS
How are you accruing for the spiff when hurtles are put in place?
How does all this build in to your total cost of business with the customer?
How many salesmen will hit the hurtles, and how much will this cost?
EXAMPLE: 50,000 widgets at $100 each paying 7.5%=$375,000 + $20K for a trip to Cancun
What are sales spiffs?EXAMPLE: 10,000 Widgets sold = additional 2.5% in commission
50,000 Widgets sold = 7.5% commission plus free trip for 2 to Cancun
IS A CUSTOMER REALLY PROFITABLE
TO THE COMPANY?
CUSTOMER MARGIN PROFIT
Also need to consider:
• Cost of all services for the customer
• Other costs associated with the customer
WHAT CAN YOU DO?
DO ANALYTICS
HAVE POSITIVE
SOLUTIONS
KNOW YOUR
AUDIENCE
SPEAK UP BE PREPARED FOR
OBJECTIONS
WILL YOU BE A HERO OR A VILLAIN?
Have your data ready, and be sure of your numbers
Be prepared to handle objections
Bring it to light, but don’t expect to be a hero
At first, you will be attackedEXAMPLE: “He is our best customer; how dare you question his profitability?”
Know what sword you’re willing to fall on
When first you don’t succeed try, try again