Management analysis, when done right, should be a boon for your business, not a boondoggle.
Recently I spent time with a client evaluating their sales and EBITDA growth. Sales have been increasing 20% annually over the last four years; EBITDA is also growing very nicely. Typical of many retailers today they are omnichannel, with catalog, Internet, wholesale and a single retail store for liquidation. Helping fuel growth is their own designed and developed product line which is manufactured offshore. Direct (catalog and Internet) is 70% of the business, while wholesale is 30%.
But here’s the problem: We had to go to 13 different reports to get sales and gross margin by channel; marketing costs by channel; operating expenses including cost per order; and shipping cost per package. Some were annual reports and we had to generate and compile a report for each year in order to get key information.
Is your ability to analyze your business confounded by endless listings and reports? Do you have to have a full-time person creating spreadsheets with the pertinent management analysis? In our consulting practice, we see this as a challenge for many companies.
Does key management reporting of your retail operations give you the results you need to grow and manage your business? A review of these key areas will help you make that determination.
Channel sales and gross margin: Does your management reporting show sales and margin by channel? The blended margin for this company is in the mid-50s as a percentage. Wholesale is a major part of the business and therefore dilutes the profitability of the catalog and ecommerce channels.
Cost of goods sold: is this and gross margin accurate? Whether you purchase open stock product, develop exclusives or design and manufacture proprietary product, does COGS include all components including internal costs to design product, inbound transportation (landed cost), commissions, duties, quality assurance and testing and overseas trading partner costs? Or are some expenses understated because they’re recorded as general and administrative expenses?
Marketing Expenses:
- Wholesale channel: has its own “picture book” catalog, pricing sheets and trade shows.
- Catalog marketing costs: fixed cost per page to design, create, photograph and color separations, and variable cost per copy to print, paper, acquire names, mail and distribute books.
- Internet business: Cost of the website design and maintenance, PPC, SEO, marketing consulting, etc.
Operating Expenses: Do you see cost per order processed and customer service for call center support and fulfillment?
Outbound shipping cost per channel: Catalog and ecommerce are similar but the wholesale orders are much larger and heavier. Blending these channel costs together distorts analysis. Can you easily see the shipping and handling revenue received vs. the cost of shipping which identifies how much “free” shipping is costing you?
What KPIs should be added to assist in understanding results? These can include cost per order, 12-month customer counts seasonally/annually to see house file growth, inventory turnover and weeks of supply.
History: to identify trends and progress being made.
Plans: where reasonable, do they measure monthly, seasonal and annual results?
Here are six action steps to improve your management analysis:
- Appoint a task force to identify key analyses (online, dashboard and reporting) you need as a management team. Have them identify all reports generated and available and whether they are system generated or Excel. You’ll be surprised how many there are. You may find how important IT staff is to running key reports. What reporting can be eliminated?
- What changes in organization do you need to make to ensure the right data is available on a timely and ongoing basis?
- Is IT a bottleneck to the users getting the analysis they need? This isn’t a slam against IT. Older systems reporting was often totally print report based. Today there are still many limitations in some organizations.
- What needs to be provided to your organization so that department managers and super users have the software tools available and are trained? Realistically, not all department managers are as savvy as they need to be in using these tools.
- What software would benefit your business beyond just exporting data to Excel from order management, fulfillment and accounting systems? This may range from independent data repositories to dashboards and BI tools for larger companies.
- Agree on calculations to be used in management reporting, KPIs and dashboards. This puts everyone on the same page when reviewing reports, and highlights if anyone is calculating something differently.
Evaluate your analytical needs. Be sure to look at all areas of the business that lack the accurate monitoring and analyses to effectively grow and manage the business.
Curt Barry is president of F. Curtis Barry & Company
This article was originally published in 2015 and is frequently updated