Furthermore, additional expenses incurred in handling the extra volume will
likely further erode profits. Examples of these expenses are:
Û Extra personnel
Û Additional advertising
Û Higher delivery costs
Û Higher administration costs involving invoicing, credit, or collections.In addition, profits will likely erode even further by the additional expense
incurred in handling the extra volume. These additional expenses could include
extra personnel, additional advertising, higher delivery costs, and higher
administration costs (invoicing, credit, and collections).
Discounting is an important part of any sales strategy. However, the sales and
marketing manager should only do it:
When accomplishing a specific purpose
When applied to only certain items or for a limited period
When given careful consideration to the impact, the discount strategy will
have on the company
Before discounting offerings, the sales and marketing manager should
prepare estimates of the gross sales and gross profit margins of at least
three scenarios:
(a) The minimum amount of inventory movement that could be
expected
(b) The median amount of inventory movement that could be
expected
(c) The maximum amount of inventory movement that could be
expected
Only examine these scenarios from the standpoint of:
How much additional operating expense can be attributed to the
gross margin generated in each scenario?
What would the net profit margin likely be in each scenario?
What impact would the projected movement of inventory in each of the
scenarios have on overall inventory turnover?
What impact would the projected movement of inventory in each scenario
have on the liquidity of the company?
Alternatively, if dead stock or slow-moving stock is reduced, then the
company’s ability to turn current assets and immediately saleable
goods into cash will have improved.