Business Insight 39 – Fixed costs and overheads (blog & vlog)

1980

We flew into this year with a mission to carry on expanding the business. This included getting proper depot premises and opening up another showroom.

Running the business from our very small Eastbourne shop, with overspill functions being taken care of in Bexhill, involved a lot of toing and froing – it was time to get ourselves a ‘Head Office’, proper depot, and an accounts department! We had discovered that canvassing around our towns increased traffic to our showrooms, and in fact, having a team working from the shops was entirely feasible. It was time to recruit more salesmen, among other things.

At this stage, the Installations organisation had: six (two man) fitting crews, a depot manager, a couple of admin staff, and a couple of directors (namely Martin Cheshire and Geoff Denny). The deal I had struck with Martin was that he would get 17.5% of the contract value to pay for the entire service, 5% on confirmation of the order, and the balancing 12.5% on completion and payment (by the customer) of the contract.

INSIGHT 39:- I love arrangements where everybody is riding on the success and/or failure of the company. Davies and Tate Installations Ltd (D&TI) was a separate organisation (we allowed them to call it that), and it had one customer: Davies and Tate Replacement Window Systems Ltd (D&TRWS). It was entirely dependent on our ability to generate sales, which, of course, we were doing magnificently. From my point of view: I had a fixed cost of 17.5% for the entire surveying and installation service; the sales operation was commission only; we only bought products when we had pre-sold them; our marketing costs were budgeted at 5% of turnover; everything went up or down with the sale, other than the rents of the shops, part-time showroom staff and a few admin/accounts staff; so we were very lean.

 

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