A multi-location retail company was experiencing declining profitability despite year over year increases in revenue. The company suffered from inconsistent accounting over the last few years due to some turnover and the financial statements did not accurately present a picture of company margins for senior management.
Through a detailed review of gross sales, net sales, and cost of goods sold, it was determined that adjustments to sales such as discounts and returns were not being properly recorded. Additionally, there was no system in place to ensure that the right product mix was being sold and to the right customers. The financial statements were reformatted to accurately track revenue and margin going forward and an ongoing and proactive system of driving optimal customer and product mix was implemented at each location.
Key personnel were being compensated based on top-line sales and sales growth. This created an incentive to drive volume, often at the cost of margins, creating downward pressure on overall profitability. A new compensation structure was developed and put in place centered on controllable profit, creating alignment and accountability moving forward.
The senior management team had much greater visibility into the financial performance of the company and the drivers of it, allowing for improved oversight. Net margins increased by 15% through management of discounts and product mix. Proper compensation plans ensured that bonus payouts coincided with positive corporate performance. New targeted marketing programs were developed to modify customer buying patterns, in some cases, resulting in lower customer volume, but an increase of 10% greater spend percustomer.GROW BOLDLY fintrepidsolutions.com
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