For the most part, administration is a necessary evil to being in business. It is therefore treated as a somewhat second-class citizen. We would have to agree with the sentiment initially because how many times has a good administration process enticed thousands of customers to your business?
Unlike a great website, inspired shop fronts and new ways of engaging with customers, virtual clothes, money off vouchers, loyalty bonuses etc, the administration process cannot compete.
So why bother if this is the way of things, why change? After all, which MD in their right mind is ever going to sanction spend on administration?
However, in reality, money is always spent on administration, the only argument is, to what end? Does it really provide a better process? Does is save money? Could it attract more business?
We are going to endeavour to answer all three questions as clearly and simply as we possibly can. Reading this statement we have come to the conclusion that it is too complicated to even try.
So why should we even contemplate this? Well, it is really simple actually.
If you make £1.00 from the sale of goods and it costs you £0.50p to buy then you make a profit of £0.50p.
If we take into consideration cost of sale, advertising, sales staff etc, this might be reduced by £0.25p. So you make a £0.25p profit.
If we then take into consideration the cost to process that transaction, you could take another £0.20p from the transaction. Finally making a profit of £0.05p.
Some would say that this is a healthy profit, others might disagree. The point is, however, no matter how you manipulate the figures, administration takes a considerable proportion of profit from any sales transaction.
However, administration is still seen as the necessary evil. We say let’s make it a profitable process, one that delivers real business benefit and increased profit.
But as we stated at the beginning of this document, administration is never going to increase the customer throughput.
It can, however, have a major impact by cutting costs by 10% and increasing profit by 10%. In factoring your decision to look at administration processes a small equation can be used.
To increase my profit (X) by 10% how much will I have to increase my sales (Y) without looking a streamlining?
In short, you would have to increase your sales by 20%, 30%, 40% to increase your profit to £0.10p.
So which is likely to be the most the expensive, increasing sales or reducing cost?
In a growth business keeping the administration process in line with the front end sales process is essential to maintain a balanced business. Like life, if we eat well and exercise our equilibrium is maintained. Too much of one or the other provides us with difficulties. Why should businesses be any different?
Improved administration, will improve supplier relationships, reduce overall product costs, increase morale, reduce mistakes and provide instant access to documents and data. Think of it as a fitness regime for your business. Not what we think of first but a necessary (not evil) part of a balanced business.
If you are ready to have a discussion about your administration processes and how you could cut your administration costs, then contact us.
