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Sales And The CFO Part Iii

Dec 26, 2010

In the prior two newsletters, we explored two of the four basic ways of the increasing your company sales.  CFO’s aren’t the “Deal Killers” that Sales Executives seem to perceive them as.  CFO’s ask the questions that need to be answered before the company is put at risk.  The CFO can provide the CEO the detail they need to boost profits during a time of sales growth. 

To reiterate, growing sales is simple really – not easy, just not complex.  Besides buying a company and growing through acquisition, there are really only four ways to grow your company:

1.       Sell more of the same stuff to the same people

2.       Sell the same stuff to different people

3.       Sell different stuff to the same people

4.       Sell different stuff to different people

 

Each of these paths to growth is covered with potholes that can pull the axle off your company’s progress.  In this Newsletter we will explore the third strategy – Sell Different Stuff to the Same People. 

 

Sell Different Stuff to the Existing Customer base

                Development cost – New products cost money.  Money to develop, money to market, money to produce, and money to qualify – even with existing customers.  New products steal market share from existing products, unless they are complementary to existing products.  If you are a tile company and now you sell grout, which may be a new product.  Sweet potato fries may also be, but they might steal sales from your regular fries.  Developing a new product consists of more than just the idea.  Application development to take advantage of new patents is as important as the original patent itself.  There are costs to commercialize new products and new ideas.  All of the costs must be absorbed prior to any payback.  Imagine the costs of developing , and promoting, a “New Coke” and the resulting payback.

                A CFO’s contribution to the process is in developing the structure to quantify the costs, to set limits on spending and establish reasonable review points to make sure that the products/services that are being developed match with the targeted customer needs, wants, or goals.   A new product which does not satisfy a target customer's needs, wants, or goals will never take off, even if all the other elements of marketing are done properly.  A CFO also helps to quantify the product introduction risk.  When and how a new product is introduced can impact the return on the new product.  Could Apple have improved their profits even more if they had been able to introduce the IPhone 4 on their own timetable – we will never know.

Make versus buy - New products can either add needed volume to your operation, or can stress your existing plant.  Your CFO can help assess make versus buy decisions . Commitment to manufacturing the new product is a long term investment – but is the new product a long term product or a fad?  Mitigating your risks may mean outsourcing the manufacturing until the demand has been established.   Outsourcing production to contract manufacturers can enable your company to scale up quickly without affecting the existing product lines.  And can help to control the costs of a new product line.

Outsourcing is also risky.  If your product is groundbreaking, has significant IP or a design difference, outsourcing may create new competitors.  The key to the determination of a “trade secret” lies in the confidentiality measures that had been taken in connection with this information.  But keeping those secrets secure when at the manufacturing plant of a third party is almost impossible, especially when the plant is in a foreign country.  Chinese market is like the Wild West – China’s reputation of counterfeiting design or content of patented products such as luxury handbags, watches, electronics, and clothing is legendary. There are even some tragedies that people consumed counterfeit food or drugs and were poisoned.  Many foreign companies come to China and have been fully challenged by the culture of deficient IP awareness.

                Metrics for payoff – Establishing the measurement of success before embarking on new product development is key to setting the appropriate budget/forecast targets.  New products can be complimentary to existing products, so how have those products served to enhance sales of existing products, pre and post introduction.  Setting growth targets, setting cost and profit targets and comparing them against actual enables management to make adjustments while the new product sales develop. By introducing to an existing customer base, the company has a channel for enhanced feedback – using those relationships is an advantage to ensure that as adjustments  are being made, theReview of assumptions against actual during introduction – is reality what we expected.

                Sales terms – Introducing a new product to existing customers may mean enticing them with a change in selling terms.  Changing terms enables the customer to finance their own purchase.  If this is a sale to a commercial customer, they may want extended terms to make sure that the product sells through – that they are left with bad inventory on the shelves.   The CFO is involved in the especially keen need to keep them happy by negotiating flexible contract terms and, sometimes, adjusting the cost of keeping customer happy with old product while purchasing new product.

 

Selling New Stuff to Existing Customers is a riskier strategy than those discussed in parts I and II.  Existing customers provide a ready source for new sales as extensions of existing products or compliments to existing products meet customer needs.  But the company bears a risk of alienating the customer base if the products fail to match promises.  Proper execution requires answers to key questions.  Answers that your CFO can provide you.   Answers you need to reach the best possible decisions.  If you don’t have a CFO, well, Every company, regardless of its size, needs a Chief Financial Officer®

More from David Alan Buslee…

About the Author

David has 27 years of financial management and operational experience working as a CFO, Director of Finance and Administration, President, General Manager and Controller for businesses ranging from closely held start-ups to Fortune 500 divisions. David has worked in a variety of industries including software, beverage, electronics manufacturing, precision machining, Mil-Spec and FAA contracting, plating and coating and distribution. David has built successful businesses in Asia, Africa and Europe. David considers himself a business man first, an accounting professional second - looking at overall business environment and company capabilities to develop the proper strategy for growth. David has implemented Lean and Six Sigma disciplines in a variety of organizations. David's diverse industry experience allows him to quickly analyze all aspects of the business to identify problem areas and develop solutions that work. His understanding of finance and operations allows him to develop the financial systems to support the company's operations as well as metrics which quickly tell the health of the organization. He possesses high-level skills in strategic business planning, establishment of operational/financial controls, transaction structuring, systems integration, human resources, and risk management. David has years of expertise in developing financial forecasts that have been used to raise capital and support business plans. David has led MIS, HR as well as Material Management functions. He has successfully selected and implemented a variety of ERP systems for manufacturing and distribution organizations. David has been involved in numerous business acquisitions and possesses the keen ability to dissect legal language and translate the terms so that they clearly state the intentions of the parties. David is a hands on manager and enjoys solving his client's problems. He works well with employees at all levels within an organization and fosters loyalty and top performance from staff members. He is respected for his superb business skills, insight, objectivity, honesty and integrity. David holds a degree in Business Administration from Fort Lewis College in Durango Colorado as well as a Masters in Business Administration from UC Irvine. David earned his CMA in 1994 and his CFM in 2004. David has a certificate in Lean Management from Villanova University.

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