Business life is getting tough. The days of credit, sales growth and benign economic environment are over, at least for the time being. Now, survival of the fittest is the order of the day. Business will have to adapt to survive or as in nature, be replaced by new businesses. People forget and some have yet to learn, that a recession is not a new phenomenon; – we have been here before. Recession is a normal part of the business and economic cycle. Some cycles are long and others short, but they all end in some type of recession as the market corrects itself.
For commercial managers, a recession is a particularly difficult time. Demand can be seriously reduced, to the point of appearing to have dried up altogether. But while demand may have appeared to have evaporated, in most cases, demand has merely been deferred. Customers, be they private consumers or business organizations still require the goods and services on which they depend. Uncertainties may make consumers slower to make decisions and buy, but it is only a matter of when they buy, not if. It is therefore down to the commercial manager to prepare for that deferred purchase.
Do commercial managers really understand the business that they are in? The question is not about marketing, but about understanding the business organization of which they are an integral part. For commercial managers to effectively maximize sustainable profitable revenue, they need to be aware of the market and economic environment in which they operate. They must ask questions about the condition of the business and its ability to weather any economic or market storm. How well is the business performing, and how do we know? How much is being invested in getting and retaining business and what is the return on that investment? What indicators should the commercial manager look for that show of the health of the business and where problems may be arising?
The first indicators are for the financial strength of the business. An examination of the balance sheet will show how the assets and liabilities are balanced, from which the ability to pay creditors may be derived. This is done by calculating, what is known as the Current Ratio for Liquidity, which compares current assets to current liabilities expressed as a ratio. When assets are larger than liabilities, it suggests that the assets are underused. However, when its assets are less than its liabilities, a business is generally considered insolvent.
The Quick Ratio or “Acid Test.” indicates its ability of the business to pay its immediate creditors, The Quick Ratio is defined as the current assets less stock, divided by the current liabilities.
While these two ratios are good initial indicators to the financial health of the business, they are relevant only at a particular time. Neither the Current Ratio nor Quick Ratio relate to a business’s trading state, marketing position, management resource, workforce or intellectual property. However, it is important that commercial managers should be continually looking at a variety of marketing performance indicators, which will quantify performance in a number of specific and significant areas. Therefore the commercial manager needs to know which key indicators may act as warning signs of inefficiency and under achievement.
The prime task of the Commercial manager is the generation of sustainable profitable revenue, thus the most obvious initial performance indicator, is the current revenue trend, as well as the complementary data for units of sales over the same period. The balance between production and sales is shown by stock turn. A slowdown in stock turn indicates that production is starting to outstrip demand, which may create future problems, particularly with cash flow. If the conversion rate from enquiry to order starts to reduce, then it is important to examine the trend in the levels of enquiry, as well as the time taken between enquiries and orders.
Calling rates for sales staff can be an important indicator especially when related to trends in the conversion rates of enquiries to orders, and order to sales. Regular checks of the customer base and order frequency will indicate movements in customer attrition and the maintenance of the customer order base. Any shrinking order base requires the definite attention of commercial manager.
Being responsible for revenue production, commercial managers need to be aware of the level and trends of bad debt and late payment. These two indicators show whether the level of invoice sales, actually turns into the cash revenue, and may highlight a need for changes in credit and payment terms. There are many others indicators which may be significant to particular businesses and industries. Used regularly, the right indicators can provide timely warning of emerging problems. It is then down to the commercial manager to devise actions to counter negative activity, or engage alternative actions to meet the objectives of the marketing plan.
Commercial managers must provide a detailed analysis of the contribution that “sales and marketing” make to the gaining and retaining of business. This should include an analysis of all sales made by: product, customer group, customer market, market sector, market segment, geographical area. In addition it should identify the source of sales including web produced, direct sales, agents, etc. The Cost of sales must be carefully analysed, by product, customer group, customer market, market sector, market segment, geographical area, as well as by direct sales, agents, and web page.
Commercial managers should report on the general performance of business getting activities in terms of:
* Orders: number, average value, total value
* Enquiry/quotation conversion rate
* Quotation/order conversion rate
* Analysis of lost orders
* Order/delivery time
* Invoice to payment time
* Total marketing cost per order
* Operating Profit
* Net Profit/unit sale
* Stock Turn
* Growth in Customers
Commercial managers must be the providers of all the quantified “sales and marketing” information on a continuous and regular basis to the senior decision makers. That information should be based on “What do we need to know? Who needs to know? For what purpose is the information required and in what form will it be needed?” Commercial managers must ensure that those decision makers have suitable performance indicators in order to prompt the necessary questions that enable informed decisions to be made.
© N.C.Watkis, Contract Marketing Service 05 Jul 22