Sales Cost per unit and per value of sales
This KPI Class related to the amount of sales cost (and its individual components) given per unit (or a piece) of sale or/ and per dollar of sale done. This KPI should be studied in conjunction with sales compensation per unit and per value of sale. You will some content in this page similar to the KPI related to sales compensation.
Business Objective behind this KPI:
Maximizing Sales Profitability and Minimizing Sales Cost.
Explanation & Specification
With reference to the business objective-
Sales cost is the costs related to the sales function. This is not 'cost of goods Sold'. Sales cost includes sales compensation, sales facilities & infrastructure cost, sales staff hiring & recruitment cost, advertising cost. Sales Profitability is a broad term and can have different definitions, depending upon what are you including in the profits (numerator) and the revenue (denominator). Typically sales profitability is linked to 'costs of good sold'and 'Sales related costs'. It does not include the other costs like administration, IT, Research & Development. The objective of sales profitability is mainly to see on how we are managing our costs vs. our sales results. Both Sales cost and profitability have to be seen in context of each other.
With reference to the KPI-
Sales cost includes following components:
- Sales compensation (Commission, bonuses..)
- Brand and Sales Promotion
- Sales Campaigns
- Sales Infrastructure and Facilities
- Field Sales logistics
- Indirect costs like IT back-bone.
- Unit of sales (per piece)
- Revenue Value of Sale (per dollar)
All of the above are essentially the measures, and the details of these measures in given to the hyperlinks. As you will see each of these measures have got finer elements (for example sales revenue value can be defined differently). However, to understand this KPI, you may not right now need to go further. You can have Different KPIs, given the elements you want to include. For example,
- Sales Compensation per unit or per value of Sales
- Sales Advertizing cost per unit or per value of sale
- Brand and Sales promotion per value or per unit of sale
Inclusions & Exclusions
In context of this KPI, you may like to have a cut, where you may not want to include (or give a lower weightage) the following kind of sales revenue. This is because very low or NIL sales effort goes into these sales:
- Automatic renewals of your services. For example subscriptions which get auto-renewed, unless the customer reverts with a cancellation.
- Long term contracts for supplies
- Customer submitting purchase order, without being approached.
- Taxes paid to the authorities. These are monies, which are part of your revenue booking but, is a liability towards the regulators.
Success factors for this KPI
There is a key element of the success drivers for this KPI- Optimizing Sales cost. You will find detail on these elements in the chapters 'Sales Cost and Profitability Management'.
Root Cause Analysis and interpretation
If the value of this KPI is low, it means that your sales compensation is not linked to your business results. There can be dozens of reason. Few key reasons could be:
- A greater part of your sales cost is fixed.
- You may not have the right mix of out-sourcing v/s in-sourcing
Measures-Facts associated with this KPI (Refer dimensional modeling in data Warehouse section)
- Sales Revenue
- Sales Compensation and its individual components
- Sales Units
Dimensions and some of their attributes (or 'cuts') over which you can slice and dice the KPI.
- Sales Channel
Direction of improvement
Optimize- This KPI needs to be well balanced. As you can see, this KPI is per unit of sale. Too low a value of this KPI may not be good, as it may be because you are selling very few units at very low sales cost. However this kind of cost-cutting may have longer term impact.
Sales & Distribution