Controlling margin and costs: the benefits of tighter controls

Companies that enforce an ongoing policy of strict margin and cost controls yield multiple benefits well beyond that of immediate short-term financial gains. Mark McArdle, Group Sales Director, Intact Software, offers some insights on developing “a culture of cost accountability”.

Focusing on key margin and cost drivers at a forensic level will enable you to spot inefficiencies in your processes, highlight most appropriate areas for investment, drive a culture of cost and margin accountability across your business and allow you to uncover opportunities or threats and take appropriate action.

I advise adopting a three-step holistic approach to ensure you set-up the right controls for your business and that they are managed correctly to drive long-term benefits.

Step 1: Change management

Without a major change-management effort, most people will keep thinking, planning and executing in the same ways. Technology can enforce your controls but, without staff buy-in, any process change will still remain difficult to execute.

Step 2: The right controls/metrics for your business

You must include, but also look beyond, traditional accounting cost and margin drivers. To drive long-term gains, you need to look at the processes that contribute to those drivers and set up metrics to measure their performance. Every business is unique in some way – so make sure your metrics accurately reflect your unique way of working.

Step 3: Embed the new controls/metrics into your business

With your metrics decided and agreed across the organisation, the next step involves setting up your business system to start tracking, measuring and reporting on these areas and, in some cases, alerting you or your team when exceptions occur. Post set-up, ensure key metrics are used as a measure of performance on an ongoing basis to ensure their importance is kept front of mind. Remember – what gets measured, gets done.

Help is at hand

A project like this can seem daunting but key areas that can have an immediate impact on your bottom line crop up again and again. I have listed them below to help you on your journey to select the most appropriate margin metrics and controls for your business.

(i) Set up role-based access levels and controls

Where multiple sales people are processing transactions, it is not possible for a manager to monitor each and every sale. Use your system to control the scope users have to reduce pricing at an acceptable level for the relevant roles within your business.

(ii) Competitive purchasing controls

From availing of system-recommended purchase orders, including alternative suppliers or cheapest price, to managing your rebates, you can maximise the margin available through the implementation of key system controls.

(iii) Margin-enhancing product set-up

When setting up products, you can stipulate the maximum discount allowed and the minimum acceptable margin. Whichever threshold is reached first will block the user from progressing with the transaction. This can be set to warn, stop, get confirmation or require authorisation. If you stock alternative products with a better margin, your system can highlight these to your customer facing staff at the point of contact/purchase.

(iv) Display inflated cost to end users

Depending on the nature of the products you’re selling and the potential fluctuations of cost, you may need to pay closer attention to your costs and what information is displayed to the end user. You can protect your margin by creating additional buffers on a user’s profile or on a product, so an inflated cost is shown.

(v) Effective reporting

For maximum margins to be attained, effective reporting can highlight low margin sales. Your system should have an audit trail so that, combined with reports, you also have the ability to see what is driving low margin sales by looking at who has done what, where and when.

(vi) Negotiate price lists per customer

By creating customer price lists, you can set individual discounts on regular purchases and standard prices on all other products, thus protecting your margin.

For more information on the benefits tighter business systems controls can have for your bottom line, email us at [email protected].

This Business Support article featured in the January/February 2017 edition of The Hardware Journal.