Tips on Reducing Marketing and Sales Costs

In light of increased international competition, many businesses have concentrated on reducing manufacturing costs. However, according to management consultants, the challenge for sales directors lies in reducing the costs of marketing and sales. It is not unusual for these to be as much as 40 to 50% of the final product cost and as such is a hot subject on sales training courses. As a result, small improvements may have a remarkable effect on profitability.

Marketing and sales costs are normally fixed close to manufacturing and are borne by the manufacturer, the market and the end-user/consumer. Particular changes in cost structure can be looked at nowadays in the following four areas:

1. The costs of carrying out orders

According to studies the costs of carrying out orders are between £40 and £60 per order, irrespective of different branches of industry. It is not unusual for companies to process between 50,000 and 100,000 orders per annum. This massive cost block can be reduced in two ways: by reducing the number of orders; and by lengthening the delivery time, in order to cut back on the cost-intensive delivery of sub-orders.

Of course, it only makes sense to cut back on the number of orders you handle, if you can increase the amount of each order. To manage this, it is necessary to pass some of the costs saved onto your clients in the form of discounts for bulk orders:

By using this method, many businesses have managed to cut their number of orders by up to 90% and thereby improve the economic efficiency of carrying out the orders. Pre-arrangement discounts can be utilised as an incentive to fix longer delivery times. Most customers would be in a position to make longer-term arrangements if they were to receive a better price for their pains.

2. Cost of storage

The greatest savings can regularly be made by streamlining your storage capacity. Some manufacturers still keep two to three months production in storage, as well as a further two to three months production, which are stored on the market. Customers also usually keep a "reserve" of a month's required stock, which means that all in all, as much as half of annual production is, at some time, kept in storage.

Just-in-Time manufacturing, which is criticised by many manufacturers as being labour-intensive and expensive, therefore offers the possibility of rationalising your storage costs.

3. Sales department costs

Sales representatives frequently complain on sales training courses that they can spend up to 30% of their time dealing with problems which crop up during the processing of orders. They clarify delivery times for the customers, send reminders out about delivery times, etc. This is a huge waste of time and energy! The following suggestions should fix this:

a. Computer-based order processing, which gives you data about the status of manufacturing and delivery at the push of a button.

b. Direct computer-link access to sales representatives via lap-top computers.

Moreover, nowadays businesses can no longer afford to pay a direct visit to every small-scale customer. This can lead to problems with some clients who for years have liaised with "their" sales representative. An alternative is to invite these customers to a trader's conference once or twice a year and use this as a conduit through which to retain contact.

How high should the sales department costs be in relation to turnover? Some people believe the upper limit should be around 3%.

4. Service costs

Particularly high tech products, such as computer systems can require a remarkable amount of servicing. Nowadays, many companies throw in a service contract with the product purchased, so that the customers have a concise and calculable cost framework.

An increasingly utilised means of lowering service costs is the so-called "hotline". If a client has a problem with his/her equipment, a service engineer tries to solve this over the 'phone. For hotlines to be effective the technical experts manning them should be briefed in basic sales training and customer contact skills.


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Richard Stone is a Director for Spearhead Training Limited that specialises in running management and sales training courses to improve business performance. Richard provides consultancy advice for numerous world leading companies.