Increasing Profitability – Managing Selling General and Administrative Costs

Many people think of this area of a company as overhead.  While there is truth in that thought, few companies can survive without an investment in sales staff and administrative support personnel.

Measurement is the key to controlling costs in these areas.  If you measure a cost you will have greater visibility to the spending components.   I want to emphasize that many businesses have self-destructed by cutting too deeply and/or failing to invest in these areas of their operations.

Selling costs include salaries, commissions and benefits for your sales personnel, their travel and vehicle costs, meals and entertainment of customers, membership dues and subscription services for the sales group, samples given to customers and other direct sales related costs.  You may want to track these costs by region if you have individuals responsible for different product lines or geographic areas.

General and administrative costs include the costs of your office facility, office personnel and their benefits, professional fees, training, IT functions, and other costs which are difficult to assign to more direct areas.   Many companies break this area into departments to provide accountability for department managers.

All of your compensation programs must support your company objectives and provide a motivating reward system for your staff.  The last thing you want is to lose key personnel because you are not competitive.  They may take customers and company knowledge with them that will be difficult to replace.

While it may be prudent to trim entertainment and travel costs in a slower period, you have to judge the impact on your customers.  Saving a few dollars on lunches with customers may cause your customer loyalty to decline and open the door for your competition.  Likewise keeping your staff current on software and industry training is money well spent and could easily be paid for via improved efficiencies.

My recommendation is that businesses staff and spend to the appropriate level for their size and industry.  Ask yourself what the company would look like if you had recently grown to your current size, particularly if you have seen a decline in revenues.  Consider building metrics to evaluate the staffing levels using volume drivers.  The number of customers, the number of employees, the number of sales invoices or purchase orders can all be used as measurement tools to evaluate staffing needs.  These metrics can also tell you when growth will require staff additions, taking much of the guest work out of that decision process.  Focus on what drives the activity level in each function, then measure that driver.

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