Focus on Liquidity: Optimize your Sales & Distribution Practices

The cheapest money you can find is already right there in your own business. To access it simply requires self-discipline and good management. In good times and bad, you must be focused on liquidity, on squeezing the last cent out of your operation. It will help improve your profits and reduce your risks.

Sales and Distribution are two main areas in your business where money is escaping needlessly, therefore, require greater control.

Selling a product or service that is grossly under-priced is easy. And it’s simple to attract customers when you over-service or accept all returns without question. Before you establish costly practices, consider the following:

Know the gross margin on all your products.
Reward sales personnel on the basis of the gross profit received, not on volume invoiced (why reward a sale where the customer does not intend to pay?)
Be cautious with warranty/return and service practices.
Maintain a minimum order/delivery policy; have customers group or block their orders.
Beware of a single large order, especially one-time sales to governments or very big
institutions. If the customer is slow paying, you may find yourself in a cash crunch; negotiate progress payments whenever possible.
Know which 20% of your customers account for 80% of your sales. Focus on their interests, predilections and tastes and take time to figure out what you can do to keep them there.

Decide where you fit in the distribution network and stay with it.
A manufacturer has a high gross margin, but also has a high investment in fixed assets (i.e. plant and equipment).
A wholesaler has a lower gross and less tied up in fixed assets, but more in inventory.
A retailer who looks at gross as a markup, the biggest investment is in inventory, often with no fixed assets at all.

Crossing two types of business often leads to a company that is only half as effective.

Test different price levels and maintain prices consistent with your quality and image.

Survey your customers.

Check your industry statistics to see how you compare against the norm.

Watch your breakeven (If your gross margin is 33.3%, $1 saved in overhead is worth
$3 in sales).

 
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