{"id":799,"date":"2020-09-15T02:15:00","date_gmt":"2020-09-15T02:15:00","guid":{"rendered":"https:\/\/phbusinessconsulting.com\/?p=799"},"modified":"2022-05-03T02:43:45","modified_gmt":"2022-05-03T02:43:45","slug":"the-importance-of-contribution-margin","status":"publish","type":"post","link":"https:\/\/phbusinessconsulting.com\/?p=799","title":{"rendered":"The Importance of Contribution Margin"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"799\" class=\"elementor elementor-799\">\n\t\t\t\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-71e71e89 elementor-section-full_width elementor-section-height-min-height elementor-section-items-stretch elementor-section-content-middle elementor-section-stretched elementor-section-height-default\" data-id=\"71e71e89\" data-element_type=\"section\" 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tabindex=\"-1\">Connect<\/a><\/li>\n<\/ul>\t\t\t<\/nav>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/header>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-1b64d463 elementor-section-stretched elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"1b64d463\" data-element_type=\"section\" data-settings=\"{&quot;stretch_section&quot;:&quot;section-stretched&quot;}\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-1d4239a2\" data-id=\"1d4239a2\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t\t\t<div class=\"elementor-element elementor-element-9419886 elementor-widget elementor-widget-text-editor\" data-id=\"9419886\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<!-- wp:paragraph -->\n<p><strong>CHALLENGE<\/strong> &#8211; <br \/>Post-merger, the now 20-year-old international company was in need of a re-envisioning of expectations within the Finance Team as well as a structured, yet practical way to measure the Sales Team\u2019s contribution to the organization. The company was facing the challenge of integration with a lack of urgency, structure, and focus from both departments. The company lacked financial discipline as well as excessive selling expenses. Setting commissions aside, to run a profitable sales\/service organization, you must have complete control of not only your costs, but also which costs should be appropriately recognized (within the P&amp;L), and attributed to, the actual transaction. Without doing so, profitability will suffer greatly.<\/p>\n<!-- \/wp:paragraph --><!-- wp:paragraph -->\n<p><strong>ACTIONS<\/strong> &#8211; <br \/>From a change management perspective, we wanted to mitigate risk of execution by too much change. With that in mind, we incorporated changes within the existing structure which consisted of six regions across North America, with a Regional President leading a team of salespeople.<\/p>\n<p>There were two basic concepts that needed to be implemented. First, the new focus of all Regional Presidents would be on Contribution Margin (defined as Gross Profit minus all Variable Costs associated with the client relationship). Second, any\/all expenses tied directly to a client relationship would be considered a \u201cSelling Expense\u201d. We moved from a discussion of \u201cSG&amp;A\u201d to Selling Expenses and General &amp; Administrative Expenses. For example: credit card fees, technology costs, creative services and warehouse expenses associated with a particular client would now be captured, recorded, and assigned to the client vs. a \u201ccorporate expense.\u201d In addition to some basic changes to record keeping, the Finance Team was now expected to have their monthly closing process completed by no later than the 15<sup>th<\/sup> of each month so the impact of measuring results would allow management to proactively run the business.<\/p>\n<p>This new focus for the Regional Presidents was to 1) educate their sales teams on the new structure and 2) to get them to embrace the fact that certain variable costs associated with specific orders and\/or clients would now be accounted for differently. To demonstrate the level of importance to this change, each Regional President was required to present their budget to the Board of Directors prior to receiving approval of their annual budgets. Once the budget was approved &#8211; the Regional President was now accountable for a Plan (a \u201cbogey\u201d). However, the incentive to achieve Plan was potentially lucrative. If they exceeded their \u201cbogey\u201d and maintained a minimum Contribution Margin percentage (divided by the revenue within their region) they would receive 25% of the excess as their annual bonus. Hence \u2013 holding Sr. leadership accountable through their compensation.<\/p>\n<!-- \/wp:paragraph --><!-- wp:paragraph -->\n<p><strong>RESULTS<\/strong> &#8211; <br \/>Improved Pre-Tax Income by &gt;$2MM in one year! The company also realized some unexpected top line growth due to Sales Associates changing their behavior\u2026. How you ask? They started charging for what previously they had given away for free!<\/p>\n<!-- \/wp:paragraph -->\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>CHALLENGE &#8211; Post-merger, the now 20-year-old international company was in need of a re-envisioning of expectations within the Finance Team as well as a structured, yet practical way to measure the Sales Team\u2019s contribution to the organization. The company was facing the challenge of integration with a lack of urgency, structure, and focus from both [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[14],"tags":[],"_links":{"self":[{"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=\/wp\/v2\/posts\/799"}],"collection":[{"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=799"}],"version-history":[{"count":15,"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=\/wp\/v2\/posts\/799\/revisions"}],"predecessor-version":[{"id":1108,"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=\/wp\/v2\/posts\/799\/revisions\/1108"}],"wp:attachment":[{"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=799"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=799"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phbusinessconsulting.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=799"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}