134 Understanding the Numbers
activity costs by studying their processes real time. I suggest you recreate from
past data as best you can what you spent to capture the clients you already have
on your system, since you’re currently selling to only a few—a sample size too
small to study real time. A detailed discussion with all those involved with the
process typically is sufficient to develop a crude analysis. I can meet next
week—Okay?THE SECOND MEETING
Dave, Carol, and Eric did a lot of work that week. After many false starts they
agreed to use the financial statement data from the past 12 months for the
analysis. Discussions with a number of their employees resulted in some inter-
esting analyses. Although unsure of a few of their assumptions, they walked in
with deeper insight into customer identification, qualification, and sale.
The activities we initially agreed upon needed some refinement. The first, cus-
tomer identification, was correct. There are actually three subactivities, trade
show attendance, trade show preparation, and advertising, which lead to an
identified customer. These activities are not mutually exclusive; often people
respond to the advertising after seeing us at a trade show, or, vise versa, they
come to our booth because they remember one of our advertising pieces. Using
your template, we arrived at some interesting results. First, you were correct,
customer identification does draw on many resources within the company. Peo-
ple from across ENT/ W attend the trade shows: our sales and marketing people
as you would expect; our corporate officers, who typically talk with the top
management of potential customers; and our operations people, who demon-
strate the system and answer the technical questions. In addition, for each show
there is quite a bit of preparation: Collateral materials such as brochures have
to be produced, booths have to be designed and built, and site contracts negoti-
ated. Aside from the trade shows, we also spend a large amount on advertising
in trade journals. In the last 12 months, we spent approximately $875,000 on
these three subactivities, which resulted in 1,200 customer leads (potential cus-
tomers). We arrived at this number by talking with just about everybody in the
organization, checking travel itineraries, expense reports, ad agency vouchers,
and the like. It’s not an exact number, so we decided to round all our numbers
to the nearest $5,000; but we think it’s close. This comes out to about $730 per
lead ($875,000/1,200, rounded). We think this is a reasonable number given
some industry benchmarks. Is that OKAY?Denise was excited; these could be good clients. “ Yes, ABC analysis does
sacrifice some accuracy for relevance. So, when you divided by the 1,200, you
implicitly assumed that each of these leads were the same. Is this true?”
Dave answered since he had done most of this analysis. “ Yes, each lead is
about the same. When people show interest, either at a show or from answering
an ad, we do about the same thing: talk with them, take down their informa-
tion, and pass it on to the next step.”
Denise thought it was now time to do a little process review. “Good, you
have just concluded your first activity-based cost analysis. Let me review the