Increasing Revenue During A Challenging Economy
By Fabio Salaverry
Is it possible to increase your revenue by 220% per year in a bad economy? It happened to me. The year was 1992. In Brazil, we were living a period of hyperinflation (1990-2,947.7%; 1991-477.3%; 1992-1,022.4%; 1993-1,927.3%; 1994-2,075.8%). At that time I was working as buyer of stationery, office products and books at a Dutch self-service wholesale company, Sam’s Club’s competitor.
The revenue of my department, when I took charge of it in 1991 was US$ 13 million. This figure was considered highly satisfactory, the previous buyer was able to increase the revenue from US$ 8 million to US$ 13 million in 5 years. In the FY 1992 I was responsible for the increasing of the revenue from US$ 13 million to US$ 42 million, by using a very simple strategy.
Curious to know what this strategy was?
1. The Answer Is Always In The System
Once I started in the company as a trainee (intern), I was able to work in all areas of the store before going to the Head Office and work as a commercial assistant and then as a buyer. Another factor that conspired in my favour was my background of 5 years’ experience in sales before becoming a buyer.
The store was responsible for the sales and inventory level, the commercial area was responsible for the assortment definition, negotiation, commercial margin and price setting. Every time the stores received a large amount of basic goods in order to have a competitive price, increasing the inventory they would call all the suppliers with orders to deliver in the following days to postpone the delivery, sometimes a couple weeks, sometimes one month or more, until the inventory would come to acceptable levels.
Because of this, the high turnover items in my department would finish and it would take two to three weeks until those items were delivered to the store again. As an effect the collateral sales (the customer goes to the store to buy a packet of cut size paper and once he is there, he buys staples, paper clips, pencil, eraser, etc.) don’t take place, bringing the sales to stagnation.
During my rotation in the store, I realised the sales performance of own brand products would sell more or equal to the leading products. I also realised that own brand products had to have 100% of service attendance, which meant it couldn’t zero the inventory at any time. Once the company would decide to have an own brand product, it had to be on the shelf. Because of this policy, own brand product inventories were not registered to the store, but to a special account.
This way, the store didn’t suffer inventory level pressure from own brand products. I observed that there were no own brand products in the non-food area.
2. Dare To Think Outside Of The Box
The idea of developing own brand products in the stationery and office products came to me as a result of my observation. It would be the answer to the problem of lack of high turnover products whenever the inventory level of the store was high. Then I defined 39 items out of 842 which were the AAA products, responsible for almost 80% of the revenue of the department (yes, Pareto was right) and started a project to develop them as own brand products.
3. Dare Not To Accept The Usual And Question Why Things Are Made The Way They Are Made
The first question to be answered was “why weren’t there any own brand products in the non-food area?” and “why nobody had thought about that before?” I went to the own brand manager and asked him about the company’s policy about developing new products in the non-food area. He didn’t know whether there was any restriction to the non-food area, so he inquired with the Head Office in the Netherlands about this issue.
The answer came that in Europe they had a complete line of non-food own brand products, even tyres and clothes. It was the green light for me to start working on my project to develop those 39 items in own brand.
4. Dare Not To Give Up On A Good Idea
The next step was to get my director’s approval. The investment was really low and we would be able to increase our revenue by not interrupting the offering of the high turnover products due to lack of inventory, and also the collateral sales would not be disrupted.
I prepared a wonderful, 18 page project, full of illustrations of the packages, very visual. If I were the director I would have approved such a project on page 15! I wouldn’t have to finish it to be convinced that it was a good project, and my best projections pointed out a staggering 50% increase on the sales in a 2 year period. I sent my beautiful project to my director on a Monday morning, I was anxious.
I had already started negotiating with the suppliers, I had the support of the own brand manager, the only thing that was missing was my director’s signature. On Friday afternoon the project returned to my hands, with a sheet attached to it, full of questions.
I was in a hurry, I was positive about the efficiency of the result my project would bring to the company. I wrote down the answers on the same sheet and sent back to the director’s secretary by the end of the day. Next week came and on the following Friday my project came back to me, with one more sheet, full of questions.
I got upset and thought to myself that it must be something personal, the reason for not approving such a good project like mine was. I was eager to bring good results, and that was the reward? I could bet that if it was one of his “beloved ones” my project would already have been approved by that moment.
5. Dare To Adjust Your Communication Style To Open Doors Of Communication
On that weekend I went to a training session (yes, in that company the training sessions were held on the weekends) where I learned about the language of human behaviour, the DISC. I suddenly realised I was “I” and my director was “C”. He needed more data, details and time to make a decision. On the following Monday when I came back to the office, I started the project again, thinking of how my director would better receive the information.
On Friday morning I had finished my 108 page project and sent it to the secretary. On the following Monday morning, the project was returned to me, but this time it was signed. No more questions. I learned one of the most precious lessons of my life… Whenever I have to present a project, I don’t have to make it the way I would buy it, but the way the person with the decision power will buy it.
I have to confess – I made a huge mistake on my forecast. I thought this simple strategy would bring a 50% increase in 2 years and it brought a 220% increase within a year. Why? Simply because I didn’t take into consideration a principle of the market: As you increase your purchase the prices fall in scale, then you sell cheaper, then the customers buy more, then your amounts increase and the prices fall even more, you sell even more, and you establish a virtuous circle.
What happened next?
I got my promotion to manager of the office products department. More importantly I earned experience to help my customers increase their revenues and profitability. That’s what we do at Mentor. We help companies to grow, even within a challenging economy.