Distributors cost + model

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Distributors cost + model

  1. 1. BUSINESS PARTNERBUSINESS PARTNERCOST + MODELCOST + MODELLansana SakhoManaging Directorhttp//www.experts-visions.comexperts@experts-visions.com“The partnership is two way street. You’re dependingon the partner to supply the expertise you lack”Cynthia Griffin, American Business Journalist
  2. 2. Distributor KPI& Cost + Model2experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 20111. Ensure that the distributorsremuneration bears a directrelationship to the relevantcosts & investment incurredin fulfilling the business.2. Enable recognition ofachievement in key focus areas.3. Ensure equitable remunerationof all distributors.THE FUNDAMENTAL PRINCIPLESTHE FUNDAMENTAL PRINCIPLES
  3. 3. Distributor KPI& Cost + Model3experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 20111. Identify the services required toachieve the business.2. Identify the structure required todeliver the services.3. Determine the cost of the identifiedstructure and services.4. To ensure that the distributorbasic profit, is relative to the costincurred.5. Determine Sales level forcalculating %.5 EASY STEPS5 EASY STEPS
  4. 4. Distributor KPI& Cost + Model4experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n Identify the services required to achieve the business.¨ National Sales, Customer / Consumer Marketing.¨ National distribution.¨ Warehousing & Stock holding.¨ Inbound logistics.¨ Outbound Trading Terms.¨ Reporting.n Identify what the business needs, not what is currentlyavailable.STEP 1STEP 1RELEVANT COSTSRELEVANT COSTS
  5. 5. Distributor KPI& Cost + Model5experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n Identify the structure required deliver the services.¨ Admin Structure & services.¨ Warehouse Structure & services.¨ National delivery to trade structure (Internal or 3rd party).¨ Sales Force structure (incl. vehicles)n Identify what the business needs, not what is currentlyavailable.STEP 2STEP 2RELEVANT COSTSRELEVANT COSTS
  6. 6. Distributor KPI& Cost + Model6experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n Determine the cost of the identified structure andservices.¨ Variable Costs¨ Variable Financial Costs¨ Fixed Costs¨ Business support funds (Duty payable, GtN, etc)n Identify Business proportion with regard to a sharedstructure.STEP 3STEP 3COSTSCOSTS –– DIRECT RELATIONSHIPDIRECT RELATIONSHIP
  7. 7. Distributor KPI& Cost + Model7experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n Those costs that are directly variable according to thelevel of activity.¨ National distribution costs¨ Clearing and forwarding costs.¨ Cost of agreed stock holding (30days)¨ Cost of sourcing Forex for imports.n The costs are determined on a per unit basis and willfluctuate from period to period, based on the agreedsales level.n The costs are based on the agreed sales level and theagreed interest rate.VARIABLE COSTSVARIABLE COSTS
  8. 8. Distributor KPI& Cost + Model8experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011VARIABLE COSTSVARIABLE COSTSExample of variable costsExample of variable costsAugust 2010 US$Derived Basic Commission (Mark-up) >>> 15,59% = US$1.00Projected Distributor Gross Sales Estimated Mark-up% @ 15,00% Mark-up 253 958Projected Sales to Distributor per Month 220 833 2 650 000Tons No of 40FCLs per annum = 3 @ 24 Tons per 40 70Service Comments Monthly % SalesTransport Costs National to all customers TSh per ton 29 254 67% 1 329 0,60%Customs clearance Cost of clearing 40 Containers 3 @ 0 TSh000s - 0,00%Total Variable Expenses 1 329 0,60%Payment Terms Credit Terms & Interest Rate 16% x 30 Days (2 330) -1,05%Inventory Finance cost to hold target cover. 16% x 30 Days 2 330 1,05%Forex sourcing Forex payments only 16% x 0 Days - 0,00%Payment Terms to trade 66% > 30 Days & Cash. 16% 79% x 30 Days 3 566 1,61%Bad Debt Provision % 0,25% 542 0,25%Total Variable Financing Charges Assumed Interest = 4% per month 4 109 1,86%
  9. 9. Distributor KPI& Cost + Model9experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n Those costs that usually relate to the business structure,i.e. are not determined by the level of sales.¨ Admin Structure & Cost of admin services.¨ Logistics Structure & Cost of services.¨ Sales Structure & Cost of sales services.(Includes the cost of vehicles)n The costs are based on the agreed structure and areproportioned based on shared services.FIXED COSTSFIXED COSTS
  10. 10. Distributor KPI& Cost + Model10experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n Funds that are provided by to enable fulfillment ofobjectives.¨ Funds to facilitate consumer marketing activities.n These funds are non-profit generating for the distributorsn Essentially, the Business Support Funds do not relate toservices provided by the distributor and are therefore notprofit generating.n Secondly, in most cases they are investments in salesgrowth, which assists the distributor in achieving thetargets.BUSINESS SUPPORT FUNDSBUSINESS SUPPORT FUNDS
  11. 11. Distributor KPI& Cost + Model11experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n Based on the costs derived from both the structureand the services provided, remunerate the distri-butor based on a mark-up on the determined cost,¨e.g. Cost + 10%.n The principle is that : remunerate the distributorbased on services provided.BASIC PROFITBASIC PROFIT
  12. 12. Distributor KPI& Cost + Model12experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011Budget or Forecast or Actual Sales ?n The question is fundamental, as the cost relative to thesales generates the %.n Low Sales (Budget) = High %¨ Over achievement = over recovery of fixed costs.n High Sales (Forecast) = Low %¨ Under achievement = non-recovery of costs.n To be reviewed on a regular basis – Quarterly.COMMISSIONCOMMISSIONSTEP 5STEP 5
  13. 13. Distributor KPI& Cost + Model13experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011AMED Sales Conference200413Budget or Forecast or Actual Sales ?n Stable volume marketsSales = Average of Last 3 months Actual.¨ Offers opportunity for over achievement > Improved profits¨ Focuses effort on sales to avoid under recovery.n Unstable volume markets (Growing or declining)Sales = Best estimate for forward period.¨ Focuses effort on sales to avoid under recovery.¨ Offers reasonable opportunity for over achievement >Improved profitsCOMMISSIONCOMMISSIONRecommendationRecommendation
  14. 14. Distributor KPI& Cost + Model14experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011Response to significant on-going under achievement?n This will lead to under recovery of costs.¨ Implication = Higher Mark-up% required.n Appropriate Response¨ Review sales performance to determine potential.¨ Review costs and implement revisions to structure as needed.COMMISSIONCOMMISSIONRecommendationRecommendation
  15. 15. Distributor KPI& Cost + Model15experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011AMED Sales Conference200415Distributor Commission Calculation August 2010 US$Derived Basic Commission (Mark-up) >>> 15,59% = US$1.00Projected Distributor Gross Sales Estimated Mark-up% @ 15,00% Mark-up 253 958Projected Sales to Distributor per Month 220 833 2 650 000Tons No of 40FCLs per annum = 3 @ 24 Tons per 40 70Service Comments Monthly % SalesTransport Costs National to all customers TSh per ton 29 254 67% 1 329 0,60%Customs clearance Cost of clearing 40 Containers 3 @ 0 TSh000s - 0,00%Total Variable Expenses 1 329 0,60%Payment Terms Credit Terms & Interest Rate 16% x 30 Days (2 330) -1,05%Inventory Finance cost to hold target cover. 16% x 30 Days 2 330 1,05%Forex sourcing Forex payments only 16% x 0 Days - 0,00%Payment Terms to trade 66% > 30 Days & Cash. 16% 79% x 30 Days 3 566 1,61%Bad Debt Provision % 0,25% 542 0,25%Total Variable Financing Charges Assumed Interest = 4% per month 4 109 1,86%Warehousing Costs TSh/mth CP %Rent of Warehouse Space All national locations @ 561 000 100% 550 0,25%Costs of warehouse labor People 3 @ 1 249 500 50% 613 0,28%Costs of operating warehouse @ - 50% - 0,00%Management Senior Managers People 2 @ 8 874 000 50% 4 350 1,97%Admin Team Non Management & Sales People 0 @ - 50% - 0,00%Admin Expenses Office running costs, Audit Fee etc @ 2 550 000 50% 1 250 0,57%Sales Team TSh /person/mthSales Supervision Sales Manager People 1 @ 3 315 000 100% 3 250 1,47%Dedicated Sales Team Wholesale Preseller People 1 @ 2 244 000 100% 2 200 1,00%Sales Supervisor - Expat People @ 3 315 000 100% - 0,00%Sales Supervisor - Local People @ 2 244 000 100% - 0,00%Retail Van Seller - Expat People 1 @ 2 244 000 100% 2 200 1,00%Retail Van Seller - Local People 1 @ 714 000 100% 700 0,32%Loaders People 2 @ 153 000 100% 300 0,14%Seeding Van 2 Vans People 2 @ 357 000 100% 700 0,32%Shared Sales Team Shared Sales Supervisors People 3 @ 2 244 000 50% 3 300 1,49%Shared Drivers People 2 @ 153 000 50% 150 0,07%Merchandising Shared Merchandisers People @ - 0% - 0,00%Sales Team Expenses Commisions etc - 100% - 0,00%Total Fixed Expenses 19 563 8,86%
  16. 16. Distributor KPI& Cost + Model16experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011AMED Sales Conference200416Distributor Commission Calculation August 2010 US$Derived Basic Commission (Mark-up) >>> 14,45% = US$1.00Projected Distributor Gross Sales Estimated Mark-up% @ 15,00% Mark-up 253 958Projected Sales to Distributor per Month 220 833 2 650 000Tons No of 40FCLs per annum = 3 @ 24 Tons per 40 70Service Comments Monthly % SalesTransport Costs National to all customers TSh per ton 29 254 67% 1 329 0,60%Customs clearance Cost of clearing 40 Containers 3 @ 0 TSh000s - 0,00%Total Variable Expenses 1 329 0,60%Payment Terms Credit Terms & Interest Rate 16% x 30 Days (2 330) -1,05%Inventory Finance cost to hold target cover. 16% x 30 Days 2 330 1,05%Forex sourcing Forex payments only 16% x 0 Days - 0,00%Payment Terms to trade 66% > 30 Days & Cash. 16% 79% x 30 Days 3 566 1,61%Bad Debt Provision % 0,25% 542 0,25%Total Variable Financing Charges Assumed Interest = 4% per month 4 109 1,86%Warehousing Costs TSh/mth CP %Rent of Warehouse Space All national locations @ 561 000 100% 550 0,25%Costs of warehouse labor People 3 @ 1 249 500 50% 613 0,28%Costs of operating warehouse @ - 50% - 0,00%Management Senior Managers People 2 @ 8 874 000 50% 4 350 1,97%Admin Team Non Management & Sales People 0 @ - 50% - 0,00%Admin Expenses Office running costs, Audit Fee etc @ 2 550 000 50% 1 250 0,57%Sales Team TSh /person/mthSales Supervision Sales Manager People 1 @ 3 315 000 100% 3 250 1,47%Dedicated Sales Team Wholesale Preseller People 1 @ 2 244 000 100% 2 200 1,00%Sales Supervisor - Expat People @ 3 315 000 100% - 0,00%Sales Supervisor - Local People @ 2 244 000 100% - 0,00%Retail Van Seller - Expat People 1 @ 2 244 000 100% 2 200 1,00%Retail Van Seller - Local People 1 @ 714 000 100% 700 0,32%Loaders People 2 @ 153 000 100% 300 0,14%Seeding Van 2 Vans People 2 @ 357 000 100% 700 0,32%Shared Sales Team Shared Sales Supervisors People 3 @ 2 244 000 50% 3 300 1,49%Shared Drivers People 2 @ 153 000 50% 150 0,07%Merchandising Shared Merchandisers People @ - 0% - 0,00%Sales Team Expenses Commisions etc - 100% - 0,00%Total Fixed Expenses 19 563 8,86%TOTAL COSTS 25 000 11,32%Distributor Profit 10% 2 500 1,13%Distributor Margin 27 500 12,45%Additional Funds provided by CPDuties and taxes Provision for Duty Payment 0,00% - 0,00%Price Discount Allowance Provision for GtN Discounts 58% of Sales @ 3,00% 4 419 2,00%Advertising Allowance Provision for Advertising Payments 0,00% - 0,00%Refundable Expenses 4 419 2,00%
  17. 17. Distributor KPI& Cost + Model17experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011n The Cost+ model is not a suitable incentive fordistributors.¨ There is no incentive to reduce cost.¨ The profit does not reward growth.n Therefore having covered the costs & basic profitability,achievement of KPIs will generate additional profitabilityon classic pay-for performance principles.n The total profit should be structured to ensure a profitrelative to the distributor’s investment in the businessADDITIONAL PROFIT > KPIsADDITIONAL PROFIT > KPIs
  18. 18. Distributor KPI& Cost + Model18experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 201118n The structure of the reward is such that when combinedwith the Cost+ profit, achievement of KPI’s at 100% willgenerate a total profit of 3% of Sales.n As per the principles of EICP, achievement can increaseto 120%, further rewarding exceptional performance.n The KPI’s are linked to the Subsidiary casita.ADDITIONAL PROFIT > KPIsADDITIONAL PROFIT > KPIs
  19. 19. Distributor KPI& Cost + Model19experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011The Cost+ Modeln links additional profitability to achievement of definedKPIs.n Ensures equitable remuneration of distributors.n Enables recognition of cost differences in differentmarketsn Ensures equitable remuneration based on performancethrough a combination of basic profit and KPIachievement.THE FUNDAMENTAL PRINCIPLETHE FUNDAMENTAL PRINCIPLE
  20. 20. Distributor KPI& Cost + Model20experts@experts-visions.com www.experts-visions.comThe company to -go for providing added value to your business© Avril 2011DISTRIBUTOR COST+ MODELTransparent,Fair,and Rewardingremunerationfor DistributorsA BUSINESS Win/Win!

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