Lessons in all kinds of places

I was brought in to act as FD for two businesses owned by the same man.  One was e-commerce and the second a manufacturing business.

All income was going into the same bank account which automatically makes transparency difficult, but the business owner was adamant both companies were making money. He was already in the process of splitting the entities – Retail, Manufacturing and an umbrella Holding company and as they were fundamentally different business models, I started looking at the subsidiaries in their own right and immediately found something was wrong.

The Retail business was making a 1% gross margin (sales minus selling costs, before any overheads and non-direct expenses). A business of this type should be making a MINUMUM of 25% gross margin, without any effort. This suggested to me that something was not right with their pricing. I was correct – they hadn’t accounted for VAT or shipping in their costings. This needed fixing immediately before any other changes could take place, so I developed a pricing calculator that made sure all costs were included and the selling price calculated with a 26% margin.  Prices were increased on the sales channels, which didn’t hurt the volume as the prices were now correct for the product value. This one exercise almost doubled turnover.

Next was advertising on the sales channels. The majority of turnover came from Amazon, but the advertising spend was absolutely astronomical. There had been no thought put into the advertising campaigns, all products were set to the same spend limit and products that were out of stock were still listed and wasting money on paid clicks. I worked with the sales team to add a more strategic approach to the advertising campaigns and managed to halve the spend per month without reducing turnover.

The other issue with the sales channels was too much emphasis on those that were not under the control of the company, i.e. their own website. By concentrating on the likes of Amazon and eBay, their costs were increased through fees and advertising, whereas if they funnelled sales to their own website they could yield a 40% average gross margin (as opposed to the 26% average gross margin from the other channels). However, their website was not good and needed some work. We had a web designer do it properly and make it look like the sort of place people would want to shop. It worked! Within 2 months sales had grown again by 20%.

While all this other good stuff was happening, I thought it would be useful to put some budgets and Key Performance Indicators in place to try and focus the rest of the team. A budget should be ambitious but realistic, with input from the entire leadership team so that they are fully invested in achieving what they’ve said they’re going to achieve. At this point the business had seen some decent growth in turnover and this momentum should have continued. We set slightly ambitious budgets, which were still realistic but they still had a long way to go to get out of the woods and be a profitable (net profit) and thriving business, so they really needed to hit those targets. However, 5 months in it became clear that growth had peaked with the current sales team. Management meetings became Groundhog Day with me asking the Commercial Director why they didn’t hit their targets and how they expected to hit them going forwards, and the answers were always vague and woolly. To make matters worse, the business owner would often change the subject so we never got to the bottom of what was really going on. After a few months I invited a friend of mine who has a thriving E-commerce business to come in and offer some free advice, but it was all ignored; the business owner resolute in his stance that what he was doing would work and he wanted to continue doing things the way he was doing them. At this point I knew I was banging my head against a brick wall and I had no choice but to withdraw myself.

It’s now almost a year since I left and I feel disappointed that this business has not moved any further on. It has taught me that you can’t force people to change, which is why it’s important that the business owners we work with are really committed to improvement with us helping them become the businesses of the future.