Question

Theresa Campana owns The Olentangy Group (named after a local river)—a manufacturer’s rep agency. The Olentangy Group sells similar products for noncompeting producers in the technology industry. She is deciding whether to add a new product line—serving another producer. She is very concerned because, although she wants more lines, she feels that something is wrong with her latest candidate.

Theresa graduated from a large Midwestern university in 2006 with a B.S. in business. She worked selling cell phones for a year. Then Theresa decided to go into business for herself and formed The Olentangy Group. Looking for opportunities, Theresa placed several ads in her local newspaper in Columbus, Ohio, announcing that she was interested in becoming a sales representative in the area. She was quite pleased to receive a number of responses. Eventually, she became the sales representative in the Columbus area for three local computer software producers: Accto Company, which produces accounting-related software; Saleco, Inc., a producer of sales management software; and Invo, Inc., a producer of inventory control software. All of these companies were relatively small and were represented in other areas by other sales representatives like Theresa. The companies often sent her leads when customers from her area expressed interest at a trade show or through the company’s website.

Theresa’s main job was to call on possible customers. Once she made a sale, she would fax the signed license agreement to the respective producer, who would then UPS the programs directly to the customer or, more often, provide a key code for a website download. The producer would bill the customer, and Theresa would receive a commission varying from 5 to 10 percent of the dollar value of the sale. Theresa was expected to pay her own expenses. And the producers would handle any user questions, either by using 800 numbers for out-of-town calls or by e-mail queries to a technical support group.

Theresa called on anyone in the Columbus area who might use the products she sold. At first, her job was relatively easy, and sales came quickly because she had little competition. Many national companies offer similar products, but at that time they were not well represented in the Columbus area. Most small businesses needed someone to demonstrate what the software could do.

In 2008, Theresa sold $250,000 worth of Accto software, earning a 10 percent commission; $100,000 worth of Saleco software, also earning a 10 percent commission; and $200,000 worth of Invo software, earning a 7 percent commission. She was encouraged with her progress and looked forward to expanding sales in the future. She was especially optimistic because she had achieved these sales volumes without overtaxing herself. In fact, she felt she was operating at about 60 percent of her capacity and could easily take on new lines. So she began looking for other products she could sell in the Columbus area.

A local software company has recently approached Theresa about selling its newly developed software, which is basically a network security product. It is designed to secretly track all of the keystrokes and mouse clicks of each employee as he or she uses the computer—so that an employer can identify inappropriate uses of its computers or confidential data. Theresa isn’t too enthusiastic about this offer because the commission is only 2 percent on potential annual sales of about $150,000—and she also doesn’t like the idea of selling a product that might undermine the privacy of employees who are not doing anything wrong.

Now Theresa is faced with another decision. The owner of the MetalCoat Company, also in Columbus, has made what looks like an attractive offer. She called on MetalCoat to see if the firm might be interested in buying her accounting software. The owner didn’t want the software, but he was very impressed with Theresa. After two long discussions, he asked if she would like to help MetalCoat solve its current problem. MetalCoat is having trouble with marketing, and the owner would like Theresa to take over the whole marketing effort.

MetalCoat produces solvents used to make coatings for metal products. It sells mainly to industrial customers in the Page 637mid-Ohio area and faces many competitors selling essentially the same products and charging the same low prices.

MetalCoat is a small manufacturer. Last year’s sales were $500,000. It could handle at least four times this sales volume with ease and is willing to expand to increase sales—its main objective in the short run. MetalCoat’s owner is offering Theresa a 12 percent commission on all sales if she will take charge of its pricing, advertising, and sales efforts. Theresa is flattered by the offer, but she is a little worried because it is a different type of product and she would have to learn a lot about it. The job also might require a great deal more traveling than she is doing now. For one thing, she would have to call on new potential customers in mid-Ohio, and she might have to travel up to 200 miles around Columbus to expand the solvent business. Further, she realizes that she is being asked to do more than just sell. But she did have marketing courses in college and thinks the new opportunity might be challenging.

Evaluate Theresa Campana’s current strategy and how the proposed solvent line fits in with what she is doing now. What should she do? Why?

Answer 1

Strategies to improve profit

Once you have identified and measured your key profit drivers, you should develop strategies to grow them, without increasing costs. Making your business more profitable involves looking at ways to increase sales revenue as well as decreasing your costs and benchmarking your business to see where you can save money.

You should also prioritise the strategies you've chosen to improve your profit so you can focus on the most important ones.

Strategies to increase sales revenue

• Increase productivity of your staff - recognise and reward staff contributions with staff performance reviews, and teach them sales skills and how to upsell products so customers make multiple purchases at one time
• Develop new product lines - survey your customers about new products
• Find new customers - new customers can help grow your business
• Find new markets - use market research to determine if you could expand your business into new areas
• Customer service - improve your customer service and develop a staff training program
• Increase your prices - check if you have priced your goods and services correctly and if you could increase prices without reducing sales
• Price discounts - consider price discounts and promotions to increase your customer base (e.g. 2-for-1 deals or happy hour)
• Retail displays - use effective retail displays to increase your sales

Strategies to decrease costs

• Decrease inventory - stock control is a good way to streamline your business
• Decrease direct costs - make sure you have the right suppliers for your business and negotiate for better prices or discounts for buying in bulk
• Decrease indirect costs - for example, try to minimise waste and errors in your business by training staff, or reduce marketing costs by using low-cost marketing techniques
• Decrease overheads - for example, save energy wherever possible or try find a cheaper energy supply company
• Benchmark key financials - benchmarking your business helps you compare your costs (like rent and utilities etc.) to similar businesses in your industry to see if you are paying too much

Prioritise your strategies

Once you have chosen strategies to make your business more profitable, you should prioritise them in order of importance. It's a good idea to write down your goals and the corresponding strategies to achieve them, and also how you plan to implement your strategies.

Focus on your more profitable item

Your products or services with the highest gross profit margin are the most important to your business, as they generate more money. Once you have identified your most profitable items you should concentrate on achieving higher sales targets for them. This may require you to rethink aspects of your business or to devise strategies for improvement. Consider using a business adviser to help you.