Deloitte Consulting LLP

Skinny Sales

When you get the facts, you can

cut the fat (or justify your budget)

Until recently CPG companies have been able to offset rising commodity, transportation, and energy costs by passing on higher prices to consumers. But now – given the maturity of North American markets, the move of cash-strapped consumers to lower cost, private label products, and the likelihood that future growth will come from outside of local markets – bumping up prices is a less tenable response to margin pressure. This puts CPG companies in an awkward squeeze: costs continue to rise, while investors expect earnings growth.

In many cases, supply chains and other operations are already “lean and mean,” making the sales organization an obvious candidate for budget cuts. In fact, for most CPG companies, sales, including the trade funds managed by sales, are second only to supply chain as the most significant cost center. Industry data (Figure 1) reveals that the cost of sales exceeds 65 percent of revenue, while SG&A expenses are almost 32 percent.

The average sales organization can usually reduce administrative expense by 2-3 percent without negatively affecting pipeline or performance, at least in the short term.1 But beyond temporary cuts to sales administration, there are more long-lasting and signifi- cant efficiencies that can be gained, again without hurting overall sales effectiveness. To get ahead of the corporate cost cutters, who may be less inclined to take a nuanced view of the possibilities, CPG sales leaders need to know where to cut and why. Read on to find out ways to do just that.

Know “what’s what” in order to do “what’s right” It’s hard to know how and where to optimize expenditures – unless you have some standard or scale against which to work. Without a means for comparison, judgments on which budget to focus may be skewed, ill-informed, and potentially damaging. With cost-cutting the law of unintended consequences can short circuit the best of intentions. So, for cost cutting to be effective and supportive of the company’s core strategic objectives, the best step forward is to leverage the best standards available.

One approach – sales benchmarking – relies on empirical data to yield both insight and predictability. There are organizations that store, analyze, and leverage sales data and express it through industry benchmarks that a CPG company can use as a guide to

Figure 1. of Total Revenue

Other 68.20%

SG&A 31.80%

of SG&A

Sales 40.58%

Other 23.90%

Promotions 35.22%

of Sales

Training

2.1%

Other Entertainment 3.3% 2.25%

Technology

Occupancy 7.8% 1.2%

Travel 7.2%

Labor
(Quota Bearing)
73.9%

Source: Sales Benchmark Index