Your SlideShare is downloading. ×
0
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Territory and Product Level Profitabilty
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Territory and Product Level Profitabilty

1,016

Published on

In this presentation, we will discuss in detail the process of evaluating performance of sales revenue, expenses and working capital controls at territory levels, types of cost allocation and methods …

In this presentation, we will discuss in detail the process of evaluating performance of sales revenue, expenses and working capital controls at territory levels, types of cost allocation and methods of evaluating productivity.
To know more about Welingkar School’s Distance Learning Program and courses offered, visit:
http://www.welingkaronline.org/distance-learning/online-mba.html

Published in: Education, Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,016
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
19
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Learning Objectives Understand How to evaluate performance of sales revenue, expenses and working capital controls at territory levels as well as product levels. What are the different types of costs & how are they controlled, allocated? Methods to evaluate productivity. Chapter Four Territory & Product Level Profitability 1
  • 2. Structure 4.1 Introduction 4.2 Costs 4.3 Summary Chapter Four Territory & Product Level Profitability 2
  • 3. 4.1 Introduction Earlier we studied how profitability can be increased by : increasing sales revenue reducing cost of sales reducing selling, distribution, marketing and administrative expenses. Now we shall evaluate performance [ and thus profitability ] at territory & product levels to find out more means to increase it. Chapter Four Territory & Product Level Profitability 3
  • 4. 4.1 Introduction Profitability at territory level can be measured from an elementary salesman level to sales supervisory levels area sales manager levels branch manager levels or ultimately zonal and / or national levels. This evaluation dashboard would show the progress of marketing, help assess productive areas and help in decision making. Chapter Four Territory & Product Level Profitability 4
  • 5. 4.1 Introduction The aim of marketing is to ensure product that is developed, marketed, sold and distributed satisfies customer requirements. and it is sold effectively. That means in addition to satisfying the customer it also earns profits for the organization. Chapter Four Territory & Product Level Profitability 5
  • 6. 4.1 Introduction Let us now try to evaluate profitability for Darham Pharmaceuticals which has all India sales of Rs 174 crores per annum. It markets OTC [over the counter] product called Darcold in tablets and syrup forms. Plus it markets ethical products Darmet & Darclox, anti-diarrhea & antibiotic formulations respectively . Darmet again is sold in tablet & syrup forms while Darclox is sold in 250mg and 500mg sizes. Chapter Four Territory & Product Level Profitability 6
  • 7. 4.1 Introduction Monthly Sales Rs. lacs Products North East West South Darcold Tab 10 7.5 12.5 8.75 Syrup 15 15 30 22 Darmet Tab 80 100 120 60 Syrup 125 150 175 100 Darclox 250mg 37.5 45 60 30 500mg 55 110 55 27.5 Total 322.5 427.5 452.5 248.3 Chapter Four Territory & Product Level Profitability 7
  • 8. 4.1 Introduction The rate of Gross Profit Margins per Product : Darcold Tablets 45% & Syrup 50% Darmet Tablets 35% & Syrup 42% Darclox 250mg 22% & 500mg 23% Now we shall look at their Organization & Salaries. Chapter Four Territory & Product Level Profitability 8
  • 9. 4.1 Introduction Vice President [Rs 45 lacs] General Manager General Manager Marketing [Rs 36 lacs] Sales [Rs 32 lacs] Darham Organization – DO 01 CTC – cost to company per year. Chapter Four Territory & Product Level Profitability 9
  • 10. 4.1 Introduction Vice President [Rs 45 lacs] Regional Sales Managers [ Rs 20 lacs each] West North South East Darham Organization – DO 02 Chapter Four Territory & Product Level Profitability 10
  • 11. 4.1 Introduction General Manager Marketing Product Manager Manager Market Research [ Rs 18 lacs] [ Rs 16 lacs] Darham Organization – DO 03 Chapter Four Territory & Product Level Profitability 11
  • 12. 4.1 Introduction Regional Sales Manager North 2 # Branch Managers [ Rs 10 lacs] 4# Sales Supervisors [Rs 7.5 lacs] for each Branch Mgr 5 # Salesmen [ Rs 5 lacs] for each Supervisor Darham Organization – DO 04 Chapter Four Territory & Product Level Profitability 12
  • 13. 4.1 Introduction Regional Sales Manager East 2 # Branch Managers [ Rs 10 lacs] 4 # & 3 # Sales Supervisors [Rs 7.5 lacs] for two Branch Mgrs respectively. 4 # Salesmen [ Rs 5 lacs] for each Supervisor Darham Organization – DO 05 Chapter Four Territory & Product Level Profitability 13
  • 14. 4.1 Introduction Regional Sales Manager West 3 # Branch Managers [ Rs 10 lacs] 4 # , 4 # & 3 # Sales Supervisors [Rs 7.5 lacs] for three Branch Mgrs respectively. 5 # Salesmen [ Rs 5 lacs] for each Supervisor Darham Organization – DO 06 Chapter Four Territory & Product Level Profitability 14
  • 15. 4.1 Introduction Regional Sales Manager South 2 # Branch Managers [ Rs 10 lacs] 5 # Sales Supervisors [Rs 7.5 lacs] for each Branch Manager 4 # & 5 # Salesmen [ Rs 5 lacs] for each Supervisor of two branches respectively. Darham Organization – DO 07 Chapter Four Territory & Product Level Profitability 15
  • 16. 4.1 Introduction Other Expenses Commission to Salesmen - 3% on OTC product 2% on ethical products. Travelling expenses p.a. - Vice President Rs. 20 lacs. GM Sales Rs. 30 lacs. GM Marketing Rs. 16 lacs. Product Manager Rs. 12 lacs. Mgr M Research Rs. 8 lacs Sales Supervisor North Zone Rs. 4 lacs ea. South Zone Rs. 3.5 lacs ea. East Zone Rs. 3.75 lacs ea. West Zone Rs. 4.5 lacs ea Chapter Four Territory & Product Level Profitability 16
  • 17. 4.1 Introduction Other Expenses contd Travelling expenses - Salesmen per Journey Cycle North Rs 20 K East Rs. 18 K West Rs. 22 K South Rs. 16 K Other Expenses - OTC Advertising Rs. 2.5 crore. Medical Sampling Rs. 3 crore. Gifts Rs. 1 crore. Chapter Four Territory & Product Level Profitability 17
  • 18. 4.1 Introduction North East West South Stock Levels Days 75 80 90 55 Credit Extended Days 17 18 26 16 With the above data let us now evaluate Darham’s performance territory & brand wise. Chapter Four Territory & Product Level Profitability 18
  • 19. 4.2 Costs Before starting evaluation process let us start first with understanding ‘costs’. Fixed Costs: Are those costs that tend to remain fixed over periods of times irrespective of volumes involved. Variable Costs : Are those costs which vary consistently with volumes produced. Semi Variable Costs : Are those costs which do not vary in proportion to volumes produced, but vary all the same at some rate, with increases in volume produced. Chapter Four Territory & Product Level Profitability 19
  • 20. 4.2 Costs Let us illustrate with a case of T Shirt Manufacturer Each T shirt needs a] cloth costing Rs. 35/- ; b] thread Rs. 6/- , c] stitching charge to tailor Rs. 12/-. Factory pays monthly d] rent of Rs. 15,000/- and e] salary of Rs. 8,000/- to the manager. Electricity charges are incurred for one shift of eight hours, but when orders increase, factory works for more hours thus increasing electricity expenses. Thus you will see that costs at a, b, and c are variable in nature while those at d and e are fixed in nature. Electricity charges are neither fixed nor variable with changes in production. These are termed semi variable costs. Chapter Four Territory & Product Level Profitability 20
  • 21. 4.2 Costs Let us illustrate with a case of T Shirt Manufacturer Unit Costs: You will also observe that unit variable cost of Rs. 53/- [ 35+6+12] is constant for all levels of production. Volumes may increase or decrease but unit variable cost is only Rs. 53/-. But when fixed costs are fully allocated to volumes produced , unit fixed costs vary with volumes. Higher the volumes lesser unit fixed cost. Chapter Four Territory & Product Level Profitability 21
  • 22. 4.2 Costs You can look at costs from the angle of whether same are controllable or uncontrollable at the hands of center head. If the branch manager can determine the rates & loads of products to be moved from the central depot to distribution points, transport costs are controllable costs for the Branch Manager. If these are determined by the Head Quarters, then for the Branch Manager they are uncontrollable costs. However if the HQ fixes only the rates and loads are decided by the Branch Manager , the transport costs are manageable costs in his hands. Chapter Four Territory & Product Level Profitability 22
  • 23. 4.2 Costs Opportunity costs open up appropriate yard sticks to choose between two alternatives. If you buy a color TV you lose interest you would have earned if the money was left in the bank. This interest lost is the opportunity cost of the TV! Incremental Costs are the extra cost that is incurred in the extra activity/task/output. It differs from Marginal Cost in as much as marginal cost is incremental cost incurred in producing one extra unit. In short run it equals unit variable cost. This overview of costs is useful when we evaluate marketing / sales performance by territory and/or product brand. Chapter Four Territory & Product Level Profitability 23
  • 24. 4.2 Costs Profitability analysis { all figures in Rs. lacs} North Zone Gross Margin earned during the year. Products Sales Margin % Margin Earned Darcold Tabs 120 45% 54 Syrup 180 50% 90 Darmet Tabs 960 35% 336 Syrup 1500 42% 630 Darclox 250 450 22% 99 500 660 23% 151.8 Total 3870 1360.8 Chapter Four Territory & Product Level Profitability 24
  • 25. 4.2 Costs Profitability analysis { all figures in Rs. lacs} East Zone Gross Margin earned during the year. Products Sales Margin % Margin Earned Darcold Tabs 90 45% 40.5 Syrup 180 50% 90 Darmet Tabs 1200 35% 420 Syrup 1800 42% 756 Darclox 250 540 22% 118.8 500 1320 23% 303.6 Total 5130 1728.9 Chapter Four Territory & Product Level Profitability 25
  • 26. 4.2 Costs Profitability analysis { all figures in Rs. lacs} West Zone Gross Margin earned during the year. Products Sales Margin % Margin Earned Darcold Tabs 150 45% 67.5 Syrup 360 50% 180 Darmet Tabs 1440 35% 504 Syrup 2100 42% 882 Darclox 250 720 22% 158.4 500 660 23% 151.8 Total 5430 1943.7 Chapter Four Territory & Product Level Profitability 26
  • 27. 4.2 Costs Profitability analysis { all figures in Rs. lacs} South Zone Gross Margin earned during the year. Products Sales Margin % Margin Earned Darcold Tabs 105 45% 47.25 Syrup 270 50% 135 Darmet Tabs 720 35% 252 Syrup 1200 42% 504 Darclox 250 360 22% 79.2 500 330 23% 75.9 Total 2985 1093.35 Chapter Four Territory & Product Level Profitability 27
  • 28. 4.2 Costs Profitability analysis { all figures in Rs. lacs} Gross margins as % of sales. Zones Sales Margin Margin as Rank Earned % of Sales NORTH 3870 1360.8 0.35 3rd EAST 5130 1728.9 0.34 4th WEST 5430 1943.7 0.36 2nd SOUTH 2985 1093.35 0.37 1st Total India 17415 6126.75 0.35 Chapter Four Territory & Product Level Profitability 28
  • 29. 4.2 Costs Profitability analysis { all figures in Rs. lacs} Net margins as % of sales. Zones Sales Gross Selling & Net Net Margin Rank Margin Distri Exps Margin % of Sales NORTH 3870 1360.8 895.7 465.1 0.12 3rd EAST 5130 1728.9 854.2 847.7 0.17 1st WEST 5430 1943.7 1219.5 724.2 0.13 2nd SOUTH 2985 1093.35 812.1 281.3 0.09 4th Total India 17415 6126.75 3781.5 2345.25 0.13 Chapter Four Territory & Product Level Profitability 29
  • 30. 4.2 Costs Profitability analysis { all amounts in Rs. lacs} Return on Investment Zones Stock Receivables Investments ROI Rank Days Amt Days Amount Amount % NORTH 75 516 17 180 696 0.67 3rd EAST 80 745 18 253 998 0.88 1st WEST 90 860 26 387 1247 0.58 4th SOUTH 55 285 16 131 416 0.68 2nd Total India 2406 951 3357 0.70 Chapter Four Territory & Product Level Profitability 30
  • 31. 4.2 Costs Profitability analysis Ranking using different evaluation parameters Zones Gross Margin Net Margin ROI NORTH 3rd 3rd 3rd EAST 4th 1st 1st WEST 2nd 2nd 4th SOUTH 1st 4th 2nd Chapter Four Territory & Product Level Profitability 31
  • 32. 4.2 Costs Profitability analysis Results of ranking using different evaluation parameters tabulated earlier indicates that :- 1] In terms of Gross Margins as % of sales , South leads with West coming second. 2] In case of net margins as % of sales, East is number one followed by West. It means that South was good in managing the product mix (explained later), it slipped in managing expenses. Chapter Four Territory & Product Level Profitability 32
  • 33. 4.2 Costs Profitability analysis Results of ranking using different evaluation parameters tabulated earlier indicates that :- 3] When we finally look at ROI, a different picture emerges. Here East has provided the best ROI of 88%, followed by South. This analysis proves that territory wise performance has to be evaluated on several parameters to really decide which zone is performing well. Chapter Four Territory & Product Level Profitability 33
  • 34. 4.2 Costs Sales Force Productivity analysis Zones Sales Rs lacs Sales Force Sales/person NORTH 3870 51 75.88 EAST 5130 38 135.00 WEST 5430 70 77.57 SOUTH 2985 58 51.47 ALL India 17415 217 80.25 Chapter Four Territory & Product Level Profitability 34
  • 35. 4.2 Costs Profitability analysis The analysis shows different regions are best performers on different parameters of profitability. Heads of zones can control some costs like salaries, travelling expenses or commissions of staff reporting to them. But they have no control on these costs incurred by HO staff like Vice President, GM Sales or Market Research etc. Whether expenses are controllable or not, it must be noted that, Center Head can manage expenses to derive maximum mileage from them. Chapter Four Territory & Product Level Profitability 35
  • 36. 4.2 Costs Profitability analysis Costs incurred by HO staff like Vice President, GM Sales or Market Research etc. though not controllable by Center Heads, they have to be allocated to the centres to arrive at total costs of the center and their net margins. This allocation over centers can be based on proportion of their sales gross margin number of staff number of branches/offices or equally among all centers. Let us see how these different methods affect the center’s net margins. Chapter Four Territory & Product Level Profitability 36
  • 37. 4.2 Costs Profitability analysis Apportionment on the basis of sales / gross margin North East West South India Zone Zone Zone Zone Sales in lacs 3870 5130 5430 2985 17415 Zone Sales 22 30 31 17 100 As % of Total Gross Margin 1360.8 1728.9 1943.7 1093.4 6127 Zone GM As % of Total 22 28 32 18 100 Chapter Four Territory & Product Level Profitability 37
  • 38. 4.2 Costs Profitability analysis Apportionment on the basis of number of staff and branches North East West South India Zone Zone Zone Zone RSM 1 1 1 1 4 BM 2 2 3 2 9 Sales Supervisor 8 7 11 10 36 Salesmen 40 28 55 45 168 Total 51 38 70 58 217 % of total 23% 18% 32% 27% 100% Zone Office 1 1 1 1 4 Branch Office 2 2 3 2 9 Total / % of Total 3 23% 3 23% 4 31% 3 23% 13 100% Chapter Four Territory & Product Level Profitability 38
  • 39. 4.2 Costs Profitability analysis We have established %s for distribution of common costs to four Zones. Assuming the Vice President spends half the time on sales and marketing common costs to be allocated are Officer Salary Travelling Total VP 22.5 10 32.5 GM 32 30 62 Total 54.5 40 94.5 Chapter Four Territory & Product Level Profitability 39
  • 40. 4.2 Costs Profitability analysis Method # 1- Net Margin after distributing costs on equal basis to four Zones. (amounts in Rs. lacs). North East West South Gross Margin 1360.8 1728.9 1943.7 1093.4 -Apportioned costs 23.6 23.6 23.6 23.6 Net margin Amount 1337.2 1705.3 1920.1 1069.8 as % of sales 34.6 33.2 35.4 35.8 Chapter Four Territory & Product Level Profitability 40
  • 41. 4.2 Costs Profitability analysis Method # 2- Net Margin after distributing costs on sales basis to four Zones. (amounts in Rs. lacs). North East West South Gross Margin 1360.8 1728.9 1943.7 1093.4 -Apportioned costs 21 27.8 29.5 16.2 Net margin Amount 1339.8 1701.1 1914.2 1077.2 as % of sales 34.6 33.2 35.3 36 Chapter Four Territory & Product Level Profitability 41
  • 42. 4.2 Costs Profitability analysis Method # 3- Net Margin after distributing costs on gross margin basis to four Zones. (amounts in Rs. lacs). North East West South Gross Margin 1360.8 1728.9 1943.7 1093.4 -Apportioned costs 21 26.7 30 16.9 Net margin Amount 1339.8 1702.2 1913.7 1076.5 as % of sales 34.6 33.2 35.2 36 Chapter Four Territory & Product Level Profitability 42
  • 43. 4.2 Costs Profitability analysis Method # 4- Net Margin after distributing costs on number of staff basis to four Zones. (amounts in Rs. lacs). North East West South Gross Margin 1360.8 1728.9 1943.7 1093.4 -Apportioned costs 22.2 16.6 30.5 25.3 Net margin Amount 1338.6 1712.4 1913.2 1068.1 as % of sales 34.6 33.4 35.2 35.8 Chapter Four Territory & Product Level Profitability 43
  • 44. 4.2 Costs Profitability analysis Method # 5- Net Margin after distributing costs on number of establishments basis to four Zones. (amounts in Rs. lacs). North East West South Gross Margin 1360.8 1728.9 1943.7 1093.4 -Apportioned costs 21.8 21.8 29.1 21.8 Net margin Amount 1339 1707 1914.6 1071.5 as % of sales 34.6 33.3 35.3 35.9 Chapter Four Territory & Product Level Profitability 44
  • 45. 4.2 Costs Profitability analysis Summary of Net Margin after distributing costs by five methods North East West South 1. Equally 34.6 33.2 35.4 35.8 2. Sales 34.6 33.2 35.3 36 3. Gross margins 34.6 33.18 35.2 36 4. Staff 34.6 33.4 35.2 35.8 5. Establishments 34.6 33.3 35.3 35.9 GM as % Sales 35.2 33.7 35.8 36.6 Chapter Four Territory & Product Level Profitability 45
  • 46. 4.2 Costs Profitability analysis You would have observed that the different basis of allocation has resulted in the net margins at the four zones undergoing changes. Since the amount apportioned is not high, the changes may seem insignificant but with larger expenses they become material. Of these several methods of apportionment , the one based in proportion to sales is the most appropriate as well as equitable. Further, even though gross margin rates are same for four zones, South has higher gross margin rate for the zone than others. This happens because of a better product mix. Let us see how. Chapter Four Territory & Product Level Profitability 46
  • 47. 4.2 Costs Profitability analysis – effects of product mix Products A,B,C & D have gross margin rates of 15%, 40%, 10% and 50% resp. Sales by Ram & Shyam for the month of January are as under :- Product Ram Shyam Sales Gross Margin Sales Gross Margin A 2000 300 3000 450 B 3000 1200 2000 800 C 1000 100 4000 400 D 4000 2000 2000 1000 Total 10,000 3600 11,000 2650 Shyam has higher sales but earned lesser gross margins as he sold more of A & C which had lower margin rates. Chapter Four Territory & Product Level Profitability 47
  • 48. 4.2 Costs Profitability analysis – effects of product mix Conclusion: Sales teams should not only sell more, but also concentrate on selling more of products that have a higher gross margin. Chapter Four Territory & Product Level Profitability 48
  • 49. 4.2 Costs Profitability analysis – effects of product mix By apportioning common expenses over Products, it is necessary to determine net margins earned by each product category. From gross margins of the product category, apportioned common expenses are deducted and net margins arrived. We have thus learnt that evaluation of marketing efforts both at a territory level and a product level is required and we have seen how this evaluation is carried for Dirham. Chapter Four Territory & Product Level Profitability 49
  • 50. 4.2 Costs Profitability analysis It is possible to evaluate centers on other yardsticks like Productivity of sales personnel: sales or gross margins per head. Expense control: travelling expenses as % of sales. Working capital control: number of days stocks and receivables. Advances received from customers, expenses incurred but still to be paid etc. Chapter Four Territory & Product Level Profitability 50
  • 51. 4.3 Summary Controllable costs are those which are controllable in the hands of the cost center head. Opportunity costs open up appropriate yard sticks to choose between two alternatives. Opportunity cost for working for self that is earning by self employment vis a vis working for another as an employee. Incremental costs are the extra cost that is incurred in the extra activity /task /input. Chapter Four Territory & Product Level Profitability 51
  • 52. That is the end of our session # 04 Next we move to session # 04 Covering chapter 05 “ Pricing.” Good Luck !Chapter Four Territory & Product Level Profitability 52
  • 53. “Like” us on Facebook:  p // /http://www.facebook.com/welearnindia “Follow” us on Twitter:http://twitter.com/WeLearnIndiahttp://twitter com/WeLearnIndiaWatch informative videos on Youtube: http://www.youtube.com/WelingkarDLP

×