At a recent conference of jobbers’ salesmen, the sales manager drew a big pie-shaped chart on the blackboard. “That circle,” he said to the audience, “represents the money we get when you make a sale.
Then he took his chalk and divided the “pie” into a hundred degrees. He counted out ten of them, and cut a slice out of the pie equal to that much of the whole. Next, he erased everything but the slice, which, he said, “represents what the company keeps out of the money it gets when you sell a bill of goods.”
The sales manager took his eraser and started lopping off slices from the slice. Depreciation of inventories, taxes, interest on investment, cost of running the credit and collection department, executive expense, depreciation on buildings, insurance, office expense and numerous other items, each in turn called for cutting down the already slim slice. Finally, there was left only a little slice equal to one and three-quarters degrees, or less than 2 per cent of the original circle. “That,” he said, “is our net profit.”
Of course, every sales person present knew only too well that the margin of net profit on what he sold was small, but few of them realized just how small it really was. One chap jumped up and wanted to know how the business could pay 8 per cent dividends if it only made 1 3/4 per cent profit. When the sales manager asked him if he understood what turnover was, the salesman was terribly insulted.
It is true that 1 3/4 per cent is smaller than the average net profit on sales. In the packing business it runs between 2 and 3 per cent. There are lines where it is even 5 per cent. But just how much or how little it is does not matter. The point is that when the average sales person makes a mistake he thinks of the cost of that mistake in relation to the gross profit, when he should think of it in relation to the net profit.
We are all careful, of course, not to spend the company’s money unnecessarily, for we know that a dollar saved in our expense account is equal to ten dollars in our order book. But do we all fully appreciate the costliness of mistakes such as a carelessly made out order, extravagance in granting a concession, or failure to inform the house of a change in our route?
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