Knowledge Center

Activity Based Costing – Sales Reengineering

This 3rd generation fire and safety protection distributor with over 6,000 customers had robust sales but only generated thin margins.  While sales were robust, customer churn was rampant due to a poor customer service culture.  Each division had their own sales team which created a high cost of sales that also inhibited cross-division selling opportunities.

PAI reengineering efforts identified analyzed the organizations large new construction sales focus.  As it turned out, new construction ground-up opportunities were complex, had lengthy investment cycles and required excellent project management which was a financial shortcoming of the organization.

PAI incorporated an Activity Based Costing methodology across the organization — breaking out profitability by product/service and sub-product/service lines.  This process also determined their true fully-loaded costing rate was too low but customers absorbed the pricing increases.  The process also illuminated the accurate roll-up of net profit and streamlined the sales commission process.

Due to the accounting Profit and Loss by division, management was unaware of how the product lines performed.  This was a major management paradigm that was only overcome after numerous ABC quarterly profitability report-out meetings endorsed by the CFO.

PAI then recommended and implemented a restructured sales force focused on selling across the enterprise and focusing on higher margin sales.  The implemented strategy was to sell (lead) the company out of low margin and high-risk sales in New Construction from -3% margin to ~45% Service and Inspection Service Line sales.  This required a large shift in resources being reassigned from New Construction to Service as New Construction projects wound down and Service Sales ramped-up over a three year period.

This process also determined and focused on the New Construction sweet spot, projects under $50k.  New Construction crews were downsized while the service department ramped-up returning the organization to profitability.

“The scrutiny that he’s been able to give us, and to have us, ourselves, looking at the numbers, and looking at the products, and looking at where we allocate our capital.”

“By doing that, what he’s been able to do is help us, and help me as the owner, to refocus on what my business is, and where I should be spending my time. That’s exactly what Steve has done, and he’s done a pretty good job at it.”

Ron Cruder – CEO

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