Resellers that do not recognise the hidden costs in their service delivery models are missing real opportunities to improve their bottom line in FY11/12. This is according to technology specialist Brother, which is urging its channel partners to review their current costs to serve and pinpoint where savings can be made.
With almost 8,000 IT companies in the UK currently showing signs of financial distress, Brother's activity based costing (ABC) plan is designed to prompt resellers to make more informed choices about how much their customer service is worth and whether savings can be made by refining, removing or introducing charges for services.
"We know that many resellers are operating at incredibly low margins for their products in order to price match against competitors, and costs simply cannot be cut any further," explained Phil Jones, sales and marketing director at Brother. "Therefore it's time for resellers to take a hard look at the cost of delivering their services, and examine whether there are potential savings that could be made, while maintaining strong customer relationships."
Examples of cost savings include reviewing free express delivery charges and looking to recover more free delivery in recharges, reviewing bespoke customer activity such as sophisticated labelling and packing requirements, or other free over and above activity.
"No one is saying that there are easy savings to be made most resellers have already taken action to reduce costs to ensure they survive the recession. ABC recovery means taking a good, hard look at your costs to serve and looking at where savings can be achieved," Jones continued. "There are tough decisions to be made on balancing customer benefits and time invested with the strategic direction of the business. Our advice is designed to highlight areas that resellers may not have considered, where activities can be reduced or revised to produce tangible savings."
ABC recovery Brother's 11 Tips for 2011
Many resellers are operating at incredibly low margins and costs simply cannot be cut any further. It's time for resellers to take a hard look at the cost of delivering their services, and examine whether there are potential savings that could be made, while maintaining strong customer relationships. Take a look at Brother's tips below for an ABC (activity-based costs) recovery.
1. Get a total understanding of your entire costs to serve an account. Create an individual profit and loss of your top 10 customers, to better understand your key market
2. Incentivise your salesforce to recover delivery costs which you currently offer for free. Perhaps share any recovered costs 50/50 with them for the first year
3. Understand how much it costs you to raise an invoice or process an order based upon your fixed overheads of administration and warehouse
4. Review your minimum order value so that you can maximise the amount of items you can ship within your standard courier charge/delivery weight
5. Review your courier costs and if necessary, switch supplier. Some items may be better sent in the post. Does the customer need next day? What about 48hr?
6. Understand how much face to face time you are putting in with low margin accounts. There is a missed opportunity cost if your salespeople are spending time with low margin, high maintenance accounts. This time could be better spent winning higher margin pieces of business
7. See if you can centrally deliver to customers located close to each other, rather than send out to individual locations
8. Know what lick and stick operations you are performing for your customer and what value that delivers for them. Use this as a lever to protect your price
9. Review your customer order frequency rates. It's more cost effective to consolidate orders, than to push multiple orders through your system each day.
10. Get transparent with your cost to serve. If you know the total amount in 's that every order you touch costs you, it can really focus you down on what type of business you want to win. Ensure your salespeople know that turnover does not equal profit
11. Make your standard terms clear. Use enhanced conditions as negotiation tools. For example, make your standard delivery 48hrs. If a customer insists on next day delivery, ask them to pay you earlier or to consolidate orders. The art of negotiation is to always ask for something when conceding
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