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 which they attempt to counter with competitive pricing - but is this enough?
The objective of the commercial manager is to generate and maximise profitable income while minimising the use of assets resources and investment. Peter Drucker, the world famous management consultant said “if you can’t measure it, you can’t manage it”. While that statement remains true, it is only relevant to the management of resources, it does not refer to the generation of profitable income.
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. 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?
Measuring performance is important in order that the commercial manager may understand and manage effectively all those activities which collectively produce the necessary income.
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 measurements 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 constant dynamic motion that may be slow or rapid. Yesterday’s and even today’s answers 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 Commercial mangers must bear in mind that customer’s requirements change, established products and services are superseded by new designs and technology changes, markets become saturated, and competitors become stronger or weaker.
For the commercial manager, the continuing problem is how to maintain and increase the flow of income while managing resources efficiently to ensure that the income is profitable. 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.
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.
- Understand customers’ changing needs and supplying their requirements.
- Expand into bigger geographical areas through direct export and the internet.
- 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 takeovers can bring income, new customers and increased market share, they can also bring short-term inherent risks and costs.)
A commercial manager’s success is based on the amount of profitable income that they generate and the efficiency with which it is produced. Maintaining income and developing new business depends on the knowledgebase and proficiency of the staff employed. Thus the effective management, direction and motivation of professional experienced staff that have entrepreneurial thinking, imagination, and flare, especially in communications, business development, and customer relations is therefore essential
Being able to recognise, foresee and exploit potential income opportunities quickly is an art which requires entrepreneurial thinking, imagination and flare. Producing income still requires initial capital and the use of other assets so that while creating gross income may be largely an art, making that income profitable requires the good commercial management of all assets and resources.
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.