Can a CFO really help your business? This case study Listening to the voice of the customer is from one of our clients, who show the value a professional could add to your business and what to look for in a virtual CFO.
The client, who we’ll call ABC, was a supplier of printer consumables such as toners, ink cartridges, printer ribbons etc. They sold these to stationers, newsagents and the like. This industry ran on very tight gross profit margins and their customers were very price-sensitive.
ABC’s owner had limited working capital and put a cap on the value of how much stock on hand he would carry at any one time. The customer expected to be able to order one day and receive delivery of the product the next day. But if an item wasn’t in stock then ABC couldn’t deliver on this promise. After some initial analysis, we became aware that 20% of all orders were sent with at least one item on back order. This often meant the customer would cancel the item and order it from a competitor. Or in the best (worst) case the business had to make a special delivery to supply the one item once it was in stock. The cost to ABC in lost sales and extra labour and delivery costs was significant. We needed to find a solution.
Finding the solution
We conducted telephone interviews with ABC’s top 25 customers. We asked them a series of questions about why they used ABC. What competitors they also used and why. And what they thought ABC needed to do to better service them.
We learned from these calls that most common customer frustration with ABC, and its competitors too, was the lack of availability of stock. They also wasted time phoning multiple suppliers trying to find one who had the item in stock. ABC’s owner insisted he could not afford to carry any more stock so we needed an innovative solution.
The key to getting more sales for our client was to be able to guarantee the availability of stock. If the customers knew they could make one call and be guaranteed to get what they needed they would likely call ABC first. More analysis of ABC sales showed that the top 100 sellers made up almost 90% of sales each month. And almost all the top 100 products came from a single wholesaler.
We first suggested that ABC offer a “guarantee of supply” for their top 100 items. Since these items made up 90% of sales revenue each month it was a great way to attract customers who had the same frustration with competitors. And it would improve satisfaction for loyal clients.
ABC’s owner felt he could only offer this guarantee if he could be guaranteed of supply from his wholesaler. The wholesaler had a history of shipping less than was ordered which also contributed to the out of stock problem.
To solve this, we approached the wholesaler with the idea that in return for payment of invoices on 21 days (instead of the usual 45 days) would he guarantee supply of the same top 100 items? The supplier agreed and ABC had created an almost risk-free guarantee that gave him a competitive edge over his competitors.
A win-win for everyone
Because of this guarantee, ABC’s customer satisfaction increased and they became the preferred supplier for many customers. Since the supplier agreed to guarantee the same top 100 sellers, the risk of the guarantee fell to the supplier instead of our client.
Because our client is now the preferred supplier he could crib a slight price increase so gross margins improved. He also reduced the number of back orders and lowered his total delivery costs. This, together with fewer phone calls reduced his staff numbers by 0.5 of a person. A saving almost $25,000 in wages each year.
A virtual CFO is a great solution for many companies, regardless of size or budget.