Distributors kpi


Published on

Distributors Cost+ remuneration model. Transparent, fair and competitive

1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Distributors kpi

  1. 1. BUSINESS PARTNER COST + MODEL Lansana Sakho Managing Director http//www.experts-visions.com [email_address] “ The partnership is two way street. You’re depending on the partner to supply the expertise you lack” Cynthia Griffin, American Business Journalist
  2. 2. <ul><li>Ensure that the distributors remuneration bears a direct relationship to the relevant costs & investment incurred in fulfilling the business. </li></ul><ul><li>Enable recognition of achievement in key focus areas. </li></ul><ul><li>Ensure equitable remuneration of all distributors. </li></ul>THE FUNDAMENTAL PRINCIPLES
  3. 3. <ul><li>Identify the services required to achieve the business. </li></ul><ul><li>Identify the structure required to deliver the services. </li></ul><ul><li>Determine the cost of the identified structure and services. </li></ul><ul><li>To ensure that the distributor basic profit, is relative to the cost incurred. </li></ul><ul><li>Determine Sales level for calculating %. </li></ul>5 EASY STEPS
  4. 4. <ul><li>Identify the services required to achieve the business. </li></ul><ul><ul><li>National Sales, Customer / Consumer Marketing. </li></ul></ul><ul><ul><li>National distribution. </li></ul></ul><ul><ul><li>Warehousing & Stock holding. </li></ul></ul><ul><ul><li>Inbound logistics. </li></ul></ul><ul><ul><li>Outbound Trading Terms. </li></ul></ul><ul><ul><li>Reporting. </li></ul></ul><ul><li>Identify what the business needs, not what is currently available. </li></ul>STEP 1 RELEVANT COSTS
  5. 5. <ul><li>Identify the structure required deliver the services. </li></ul><ul><ul><li>Admin Structure & services. </li></ul></ul><ul><ul><li>Warehouse Structure & services. </li></ul></ul><ul><ul><li>National delivery to trade structure (Internal or 3 rd party). </li></ul></ul><ul><ul><li>Sales Force structure (incl. vehicles) </li></ul></ul><ul><li>Identify what the business needs, not what is currently available. </li></ul>STEP 2 RELEVANT COSTS
  6. 6. <ul><li>Determine the cost of the identified structure and services. </li></ul><ul><ul><li>Variable Costs </li></ul></ul><ul><ul><li>Variable Financial Costs </li></ul></ul><ul><ul><li>Fixed Costs </li></ul></ul><ul><ul><li>Business support funds (Duty payable, GtN, etc) </li></ul></ul><ul><li>Identify Business proportion with regard to a shared structure. </li></ul>STEP 3 COSTS – DIRECT RELATIONSHIP
  7. 7. <ul><li>Those costs that are directly variable according to the level of activity. </li></ul><ul><ul><li>National distribution costs </li></ul></ul><ul><ul><li>Clearing and forwarding costs. </li></ul></ul><ul><ul><li>Cost of agreed stock holding (30days) </li></ul></ul><ul><ul><li>Cost of sourcing Forex for imports. </li></ul></ul><ul><li>The costs are determined on a per unit basis and will fluctuate from period to period, based on the agreed sales level. </li></ul><ul><li>The costs are based on the agreed sales level and the agreed interest rate. </li></ul>VARIABLE COSTS
  8. 8. VARIABLE COSTS Example of variable costs
  9. 9. <ul><li>Those costs that usually relate to the business structure, i.e. are not determined by the level of sales. </li></ul><ul><ul><li>Admin Structure & Cost of admin services. </li></ul></ul><ul><ul><li>Logistics Structure & Cost of services. </li></ul></ul><ul><ul><li>Sales Structure & Cost of sales services. </li></ul></ul><ul><ul><li>(Includes the cost of vehicles) </li></ul></ul><ul><li>The costs are based on the agreed structure and are proportioned based on shared services. </li></ul>FIXED COSTS
  10. 10. <ul><li>Funds that are provided by to enable fulfillment of objectives. </li></ul><ul><ul><li>Funds to facilitate consumer marketing activities. </li></ul></ul><ul><li>These funds are non-profit generating for the distributors </li></ul><ul><li>Essentially, the Business Support Funds do not relate to services provided by the distributor and are therefore not profit generating. </li></ul><ul><li>Secondly, in most cases they are investments in sales growth, which assists the distributor in achieving the targets. </li></ul>BUSINESS SUPPORT FUNDS
  11. 11. <ul><li>Based on the costs derived from both the structure and the services provided, remunerate the distri-butor based on a mark-up on the determined cost, </li></ul><ul><ul><li>e.g. Cost + 10%. </li></ul></ul><ul><li>The principle is that : remunerate the distributor based on services provided. </li></ul>BASIC PROFIT
  12. 12. <ul><li>Budget or Forecast or Actual Sales ? </li></ul><ul><li>The question is fundamental, as the cost relative to the sales generates the %. </li></ul><ul><li>Low Sales (Budget) = High % </li></ul><ul><ul><li>Over achievement = over recovery of fixed costs. </li></ul></ul><ul><li>High Sales (Forecast) = Low % </li></ul><ul><ul><li>Under achievement = non-recovery of costs. </li></ul></ul><ul><li>To be reviewed on a regular basis – Quarterly . </li></ul>COMMISSION STEP 5
  13. 13. <ul><li>Budget or Forecast or Actual Sales ? </li></ul><ul><li>Stable volume markets </li></ul><ul><ul><li>Sales = Average of Last 3 months Actual. </li></ul></ul><ul><ul><li>Offers opportunity for over achievement > Improved profits </li></ul></ul><ul><ul><li>Focuses effort on sales to avoid under recovery. </li></ul></ul><ul><li>Unstable volume markets (Growing or declining) </li></ul><ul><ul><li>Sales = Best estimate for forward period. </li></ul></ul><ul><ul><li>Focuses effort on sales to avoid under recovery. </li></ul></ul><ul><ul><li>Offers reasonable opportunity for over achievement > Improved profits </li></ul></ul>AMED Sales Conference 2004 COMMISSION Recommendation
  14. 14. <ul><li>Response to significant on-going under achievement? </li></ul><ul><li>This will lead to under recovery of costs. </li></ul><ul><ul><li>Implication = Higher Mark-up% required. </li></ul></ul><ul><li>Appropriate Response </li></ul><ul><ul><li>Review sales performance to determine potential. </li></ul></ul><ul><ul><li>Review costs and implement revisions to structure as needed. </li></ul></ul>COMMISSION Recommendation
  15. 15. AMED Sales Conference 2004
  16. 16. AMED Sales Conference 2004
  17. 17. <ul><li>The Cost+ model is not a suitable incentive for distributors. </li></ul><ul><ul><li>There is no incentive to reduce cost. </li></ul></ul><ul><ul><li>The profit does not reward growth. </li></ul></ul><ul><li>Therefore having covered the costs & basic profitability, achievement of KPIs will generate additional profitability on classic pay-for performance principles. </li></ul><ul><li>The total profit should be structured to ensure a profit relative to the distributor’s investment in the business </li></ul>ADDITIONAL PROFIT > KPIs
  18. 18. <ul><li>The structure of the reward is such that when combined with the Cost+ profit, achievement of KPI’s at 100% will generate a total profit of 3% of Sales. </li></ul><ul><li>As per the principles of EICP, achievement can increase to 120%, further rewarding exceptional performance. </li></ul><ul><li>The KPI’s are linked to the Subsidiary casita. </li></ul>ADDITIONAL PROFIT > KPIs
  19. 19. <ul><li>The Cost+ Model </li></ul><ul><li>links additional profitability to achievement of defined KPIs. </li></ul><ul><li>Ensures equitable remuneration of distributors. </li></ul><ul><li>Enables recognition of cost differences in different markets </li></ul><ul><li>Ensures equitable remuneration based on performance through a combination of basic profit and KPI achievement. </li></ul>THE FUNDAMENTAL PRINCIPLE
  20. 20. DISTRIBUTOR COST+ MODEL <ul><li>Transparent, </li></ul><ul><li>Fair, </li></ul><ul><li>and Rewarding </li></ul><ul><li>remuneration </li></ul><ul><li>for Distributors </li></ul><ul><li>A BUSINESS Win/Win! </li></ul>