Case Study – How Much Can You Afford to Pay For a Customer?

Case Study – How Much Can You Afford to Pay For a Customer?

After a number of years of steady, profitable growth a company had maxed out their ability to fulfill orders in a timely fashion. The owners knew they had to add capacity which meant they would have to add people, train them properly, and change their internal systems to add capacity. So they made a commitment to change, hired their first sales manager to keep sales momentum growing, and started a year-long internal changeover to increase capacity.

They hired the needed people, trained them, updated their internal systems, but the new sales manager didn’t work out. Sales didn’t increase. Their once healthy profits eroded from the increased investment without an increase in sales volume. Now they had the capacity to fulfill anticipated greater sales volume but didn’t have greater sales necessary to keep those people profitably employed. The Profit and Loss statement was getting close to showing red ink. They had a dilemma. They could either invest more in marketing and sales to increase sales volume or cut back on the work force, returning fulfillment capacity to the previous, lower level.

They did not go into this blindly or just hope to be successful. They scrutinized the data, did a limited trial promotion, and when that proved successful, expanded aggressively. They knew what they could spend to attract a new customer. Do you?

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