Is creating income an art or a science?

For many years, the major supermarkets have enjoyed annual increases in turnover; like-for-like sales and overall profits. Now those same supermarkets are reporting falling sales and profits, while their managements are trying to understand why this has happened and what to do about it.

It is a mistake to assume that the upward trend in sales and profits will always continue, or to base planning on that assumption. Forecasting the future based on past performance is always a problem. Are the conditions the same, improving or worsening? Where is the evidence?

To be successful, the commercial manager needs to remember that while income can go up as well as down, they also need to understand why. What are the underlying factors? Markets and demand are finite, customers’ requirements change, markets get saturated, and both products and services have a finite life.

Peter Drucker, the world famous management consultant, said: “if you can’t measure it you can’t manage it”. While that statement remains true, the statement refers only to the management of resources, it does not refer to the generation of profitable income. However, performance measurement remains an important tool for effective management of resources.

The objective of the commercial manager is to generate and maximise profitable income while minimising the use of assets resources and investment. Performance measurement can show what has been achieved in a specific period and in some cases show the efficiency of producing profitable income in real time. As such, performance measurement can give an indication of what commercial actions have been successful in the past and even currently.

But future commercial performance is not based on a straight extrapolation of a graphical line. The marketplace is in a constant dynamic motion that may be slow or rapid. Yesterday’s answers, and even those of today, may or may not be suitable for tomorrow’s market situation. Commercial mangers must bear in mind that customer’s requirements change, established products and services are superseded by new designs and technology changes, markets become saturated, and competitors become stronger or weaker.

While commercial managers must strive for efficiency in the use of assets and investment as indicated in performance measurements, they must also concentrate on how to maintain and increase the level of sustained profitable income. The perpetual problem for the commercial manager, is how to maintain and increase profitable income while managing resources effectively? Income comes from customers who collectively comprise the market in which the business operates. Therefore, it is essential that commercial managers should be continually aware of the development of individual customer requirements and the changes to existing and potential market opportunities and threats. Understanding this information is fundamental to the preparation of future business planning, as is creativity and imagination.

Principles to provide profitable outcomes

How can the commercial manager maintain or increase profitable income?

There are no simple answers to this question that guarantee success, but there are principles which if applied can provide profitable outcomes.

• Businesses need to strive for continual growth in order to replace the natural wastage of customers.
• Understanding customers’ changing needs, requirements and motivations.
• Use direct export and the internet to expanding into bigger geographical areas.
• Diversify into new areas especially if the market is saturated or declining.
• Develop new products to compliment an existing product range or replace obsolete ones.
• Develop customer and market communications through social media and the internet to complement established media advertising and public relations.
• Consider expansion by takeover. (While take overs can bring income, new customers and increased market share, they can also bring short term inherent risks and costs.)
• Apply lateral thinking to threats and opportunities, to find new solutions.
• Encourage creativity and imagination amongst the workforce to develop new ideas and opportunities.

Commercial managers are paid to manage assets which are measured in financial and numerical value to produce income efficiently. How such assets are used effectively is dependent on the knowledgebase and proficiency of the staff employed. The effective management, direction and motivation of  professional experienced staff that have entrepreneurial thinking, imagination, and flare especially in communications and business development, is therefore essential

While performance measurements show how resources are being used efficiently, and sales trends give a guide to changes in demand, only good customer relations can indicate future developments and opportunities, which performance measurements cannot do.

Efficient and effective management is essential for building and maintaining a continuous flow of profitable income, but successful business also requires the art of being able to see and foresee potential opportunities and to be able to exploit them quickly.

Finding and exploiting opportunities to create income is largely an art, but making that income profitable requires efficient and effective commercial management.

Nicholas Watkis is the founder of Contract Marketing Service, established in 1981. He is a fellow of the Chartered Institute of Marketing and a certified management consultant of the Institute of Business Consultancy.