Opportunity Cost

Opportunity Cost

In manufacturing, the success of a business is measured in the sales achieved. Higher sales mean more profit. All companies need to set higher targets than the previous year to sustain growth. Whist this is what all companies want, it is not always achievable.

Whilst this could be down to many factors like pricing, quality and delivery, one of the reasons could be down to opportunity costs.

An example could be that an engineering distributor decides to buy a power drill for £60 and sells it for £95 as an end of year offer to their customer base. A second option could be to buy a power saw at £60 and which sells for £110. The opportunity cost would be the £15 the distributor lost by not buying and selling the power saw.

As a sales manager in engineering we need to target potential customers and get them to buy our product. This can be done over the telephone, face to face meeting, internet, exhibitions, newspaper/magazine advertising, conferences etc.

All of these ways of generating business would usually be discussed at weekly or monthly sales meetings. During these discussions we would look at the most cost effective ways to win business. Different sales reps have preferred ways to target their customer based and are judged by their success.

Internet directory advertising verses Exhibitions

Internet Directory

Many engineering companies would take an enhanced listing in an online engineering directory that targets their particular product. This is usually paid on an annual basis. There are many different types of directories with companies being listed in several. One local company in Coventry called Fanuc Robotics (UK) Ltd are listed in over 10 at an annual cost of   around £16,000. Each year, at sales meetings they would review this outlay against sales that have been generated from customers viewing there directory listing. If they looked at the figures and found that they had generated over £20,000, then they would have...