Distributors kpi

BUSINESS PARTNER BUSINESS PARTNER COST + MODEL COST + MODEL

Lansana SakhoManaging Directorhttp//[email protected]

“The partnership is two way street. You’re depending on the partner to supply the expertise you lack”

Cynthia Griffin, American Business Journalist

Distributor KPI & Cost + Model

[email protected] www.experts-visions.com

The company to -go for providing added value to your business©

Avril 2011

1. Ensure that the distributors remuneration bears a direct relationship to the relevant costs & investment incurred in fulfilling the business.

2. Enable recognition of achievement in key focus areas.

3. Ensure equitable remuneration of all distributors.

THE FUNDAMENTAL PRINCIPLES THE FUNDAMENTAL PRINCIPLES




Avril 2011

1. Identify the services required to achieve the business.

2. Identify the structure required to deliver the services.

3. Determine the cost of the identified structure and services.

4. To ensure that the distributor basic profit, is relative to the cost incurred.

5. Determine Sales level for calculating %.

5 EASY 5 EASY STEPS STEPS




Avril 2011

Identify the services required to achieve the business. National Sales, Customer / Consumer Marketing. National distribution. Warehousing & Stock holding. Inbound logistics. Outbound Trading Terms. Reporting.

Identify what the business needs, not what is currently available.

STEP 1 STEP 1

RELEVANT COSTSRELEVANT COSTS




Avril 2011

Identify the structure required deliver the services. Admin Structure & services. Warehouse Structure & services. National delivery to trade structure (Internal or 3rd party). Sales Force structure (incl. vehicles)

Identify what the business needs, not what is currently available.

STEP 2 STEP 2

RELEVANT COSTSRELEVANT COSTS




Avril 2011

Determine the cost of the identified structure and services. Variable Costs Variable Financial Costs Fixed Costs Business support funds (Duty payable, GtN, etc)

Identify Business proportion with regard to a shared structure.

STEP 3 STEP 3

COSTS – DIRECT RELATIONSHIP COSTS – DIRECT RELATIONSHIP




Avril 2011

Those costs that are directly variable according to the level of activity. National distribution costs Clearing and forwarding costs. Cost of agreed stock holding (30days) Cost of sourcing Forex for imports.

The costs are determined on a per unit basis and will fluctuate from period to period, based on the agreed sales level.

The costs are based on the agreed sales level and the agreed interest rate.

VARIABLE COSTS VARIABLE COSTS




Avril 2011

VARIABLE COSTS VARIABLE COSTS

Example of variable costs Example of variable costs

August 2010 US$Derived Basic Commission (Mark-up) >>> 15,59% = US$1.00

Projected Distributor Gross Sales Estimated Mark-up% @ 15,00% Mark-up 253 958

Projected Sales to Distributor per Month 220 833 2 650 000

Tons No of 40'FCL's per annum = 3 @ 24 Tons per 40' 70 Service Comments Monthly % Sales

Transport Costs National to all customers TSh per ton 29 254 67% 1 329 0,60%Customs clearance Cost of clearing 40' Containers 3 @ 0 TSh000's - 0,00%

Total Variable Expenses 1 329 0,60%

Payment Terms Credit Terms & Interest Rate 16% x 30 Days (2 330) -1,05%

Inventory Finance cost to hold target cover. 16% x 30 Days 2 330 1,05%

Forex sourcing Forex payments only 16% x 0 Days - 0,00%

Payment Terms to trade 66% > 30 Days & Cash. 16% 79% x 30 Days 3 566 1,61%

Bad Debt Provision % 0,25% 542 0,25%

Total Variable Financing Charges Assumed Interest = 4% per month 4 109 1,86%




Avril 2011

Those costs that usually relate to the business structure, i.e. are not determined by the level of sales. Admin Structure & Cost of admin services. Logistics Structure & Cost of services. Sales Structure & Cost of sales services.

(Includes the cost of vehicles)

The costs are based on the agreed structure and are proportioned based on shared services.

FIXED COSTS FIXED COSTS




Avril 2011

Funds that are provided by to enable fulfillment of objectives. Funds to facilitate consumer marketing activities.

These funds are non-profit generating for the distributors

Essentially, the Business Support Funds do not relate to services provided by the distributor and are therefore not profit generating.

Secondly, in most cases they are investments in sales growth, which assists the distributor in achieving the targets.

BUSINESS SUPPORT FUNDS BUSINESS SUPPORT FUNDS




Avril 2011

Based on the costs derived from both the structure and the services provided, remunerate the distri-butor based on a mark-up on the determined cost, e.g. Cost + 10%.

The principle is that : remunerate the distributor based on services provided.

BASIC PROFIT BASIC PROFIT




Avril 2011

Budget or Forecast or Actual Sales ?

The question is fundamental, as the cost relative to the sales generates the %.

Low Sales (Budget) = High % Over achievement = over recovery of fixed costs.

High Sales (Forecast) = Low % Under achievement = non-recovery of costs.

To be reviewed on a regular basis – Quarterly.

COMMISSION COMMISSION

STEP 5 STEP 5




Avril 2011 AMED Sales Conference 200413

Budget or Forecast or Actual Sales ?

Stable volume marketsSales = Average of Last 3 months Actual. Offers opportunity for over achievement > Improved profits Focuses effort on sales to avoid under recovery.

Unstable volume markets (Growing or declining)

Sales = Best estimate for forward period. Focuses effort on sales to avoid under recovery. Offers reasonable opportunity for over achievement >

Improved profits


Recommendation Recommendation




Avril 2011

Response to significant on-going under achievement?

This will lead to under recovery of costs. Implication = Higher Mark-up% required.

Appropriate Response Review sales performance to determine potential. Review costs and implement revisions to structure as needed.


Recommendation Recommendation





Distributor Commission Calculation August 2010 US$Derived Basic Commission (Mark-up) >>> 15,59% = US$1.00












Warehousing Costs TSh/mth CP %

Rent of Warehouse Space All national locations @ 561 000 100% 550 0,25%

Costs of warehouse labor People 3 @ 1 249 500 50% 613 0,28%

Costs of operating warehouse @ - 50% - 0,00%

Management Senior Managers People 2 @ 8 874 000 50% 4 350 1,97%

Admin Team Non Management & Sales People 0 @ - 50% - 0,00%

Admin Expenses Office running costs, Audit Fee etc @ 2 550 000 50% 1 250 0,57%

Sales Team TSh /person/mth

Sales Supervision Sales Manager People 1 @ 3 315 000 100% 3 250 1,47%

Dedicated Sales Team Wholesale Preseller People 1 @ 2 244 000 100% 2 200 1,00%

Sales Supervisor - Expat People @ 3 315 000 100% - 0,00%

Sales Supervisor - Local People @ 2 244 000 100% - 0,00%

Retail Van Seller - Expat People 1 @ 2 244 000 100% 2 200 1,00%

Retail Van Seller - Local People 1 @ 714 000 100% 700 0,32%

Loaders People 2 @ 153 000 100% 300 0,14%

Seeding Van 2 Vans People 2 @ 357 000 100% 700 0,32%

Shared Sales Team Shared Sales Supervisors People 3 @ 2 244 000 50% 3 300 1,49%

Shared Drivers People 2 @ 153 000 50% 150 0,07%

Merchandising Shared Merchandisers People @ - 0% - 0,00%

Sales Team Expenses Commisions etc - 100% - 0,00%

Total Fixed Expenses 19 563 8,86%





Distributor Commission Calculation August 2010 US$Derived Basic Commission (Mark-up) >>> 14,45% = US$1.00












Warehousing Costs TSh/mth CP %

Rent of Warehouse Space All national locations @ 561 000 100% 550 0,25%

Costs of warehouse labor People 3 @ 1 249 500 50% 613 0,28%

Costs of operating warehouse @ - 50% - 0,00%

Management Senior Managers People 2 @ 8 874 000 50% 4 350 1,97%

Admin Team Non Management & Sales People 0 @ - 50% - 0,00%

Admin Expenses Office running costs, Audit Fee etc @ 2 550 000 50% 1 250 0,57%

Sales Team TSh /person/mth

Sales Supervision Sales Manager People 1 @ 3 315 000 100% 3 250 1,47%

Dedicated Sales Team Wholesale Preseller People 1 @ 2 244 000 100% 2 200 1,00%

Sales Supervisor - Expat People @ 3 315 000 100% - 0,00%

Sales Supervisor - Local People @ 2 244 000 100% - 0,00%

Retail Van Seller - Expat People 1 @ 2 244 000 100% 2 200 1,00%

Retail Van Seller - Local People 1 @ 714 000 100% 700 0,32%

Loaders People 2 @ 153 000 100% 300 0,14%

Seeding Van 2 Vans People 2 @ 357 000 100% 700 0,32%

Shared Sales Team Shared Sales Supervisors People 3 @ 2 244 000 50% 3 300 1,49%

Shared Drivers People 2 @ 153 000 50% 150 0,07%

Merchandising Shared Merchandisers People @ - 0% - 0,00%

Sales Team Expenses Commisions etc - 100% - 0,00%

Total Fixed Expenses 19 563 8,86%

TOTAL COSTS 25 000 11,32%

Distributor Profit 10% 2 500 1,13%

Distributor Margin 27 500 12,45%Additional Funds provided by CP

Duties and taxes Provision for Duty Payment 0,00% - 0,00%

Price Discount Allowance Provision for GtN Discounts 58% of Sales @ 3,00% 4 419 2,00%

Advertising Allowance Provision for Advertising Payments 0,00% - 0,00%

Refundable Expenses 4 419 2,00%




Avril 2011

The Cost+ model is not a suitable incentive for distributors. There is no incentive to reduce cost.

The profit does not reward growth.

Therefore having covered the costs & basic profitability, achievement of KPIs will generate additional profitability on classic pay-for performance principles.

The total profit should be structured to ensure a profit relative to the distributor’s investment in the business

ADDITIONAL PROFIT > KPIs ADDITIONAL PROFIT > KPIs




Avril 2011 18

The structure of the reward is such that when combined with the Cost+ profit, achievement of KPI’s at 100% will generate a total profit of 3% of Sales.

As per the principles of EICP, achievement can increase to 120%, further rewarding exceptional performance.

The KPI’s are linked to the Subsidiary casita.

ADDITIONAL PROFIT > KPIs ADDITIONAL PROFIT > KPIs




Avril 2011

The Cost+ Model

links additional profitability to achievement of defined KPIs.

Ensures equitable remuneration of distributors.

Enables recognition of cost differences in different markets

Ensures equitable remuneration based on performance through a combination of basic profit and KPI achievement.

THE FUNDAMENTAL PRINCIPLE THE FUNDAMENTAL PRINCIPLE




Avril 2011

DISTRIBUTOR COST+ MODEL

Transparent,Fair,

and Rewarding remuneration

for Distributors

A BUSINESS Win/Win!

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Distributors kpi