FROM MARKET STALL TRADER TO MANUFACTURING MARVEL
I founded The Cape Herb & Spice Company in 1992. The business started by selling unusual herbs and spices at a market stall. Fourteen years later it was manufacturing white labels goods for international brands and had turned into a business with a multi-million turnover.
It had a purpose-built factory and enviable customers: Trader Joes in the US, Loblaws in Canada and Aldi in Germany, among others. The company's success became a case study for business growth.
The company's phenomenal growth was achieved through a co-creation business model, a carefully curated supply chain, and an openness to implementing innovative technology that would boost cost efficiencies and improve profits.
Here’s one of the ways this happened.
Business: The Cape Herb & Spice Company
Good strategy is based on good information. Better date leads to better decision making.
- Dale Kneen
Analysing costs to boost profits
The Cape Herb & Spice Company priced the products it manufactured by adding margin to the variable costs: the components that made up the product and the cost of production.
Marketing, procurement and quality assurance staff costs formed part of the company’s fixed costs and would be reflected as such by accounting staff in financial statements.
Products were custom-designed for individual clients and it was clear that some were taking a larger share of the business’s fixed costs than others.
One reason was that components for some products were extremely difficult to procure and it took a lot of effort to get them in time for production. A second reason was that the product lifecycle for some clients was short, which drained R&D resource from product developers as well as marketing and quality assurance staff.
The financial accounts were therefore becoming increasingly unreliable for management decision-making. In order to develop a sound marketing strategy for The Cape Herb & Spice Company, it was necessary to understand which customers were high value and which ones weren’t.
Budget could then be apportioned in line with the customer’s value to the company and if losses were being made on any accounts, this could be addressed by marketing and sales staff.
A cost accounting exercise was undertaken, which involved collecting, recording, classifying and analysing all the costs associated with each customer.
This made it possible to determine the true margin on each customer account and to rank customers according to profitability. Sales and marketing staff could then devise ways of managing costs and increasing margin or retiring business where losses couldn’t be rectified.
Reliable management data meant a sound marketing budget could be developed, channelling a larger proportion of funds to retaining and growing more profitable accounts.
The data could also be used for benchmarking individuals when performing performance reviews. It also shifted the focus of key performance indicators from revenue to profit generation.
Having better data meant marketing staff were better able to manage their time, giving priority to high value accounts while ensuring minimum service levels were met for low-priority accounts.
Return on marketing investment
With the aid of a junior accountant, I devised a method for staff to apportion the time they spent on different accounts. As no historical data was available, it was necessary for staff to monitor their time over one month as a sample in order to derive an annual figure.
Quantitative data was collected through a questionnaire and interviews were held with senior staffers across marketing, sales, quality assurance and procurement.
The salary of each individual was divided by the time spent on each customer in order to get an accurate reflection of these costs. Revenue data was collected for all customer accounts and all variable costs were deducted from these. The salary costs of marketing, sales, quality assurance and procurement staff could be deducted according to time-cost calculations that had been made.
I was then able to use this data to make informed decisions to set the marketing strategy for the company. I was able to set a marketing budget, communicate the strategy to marketing staff, and make the implementation of the new strategy part of their performance objectives.
Marketing staff had previously apportioned their time and budgets equally across the range of accounts they managed.
Having better data meant they were better able to manage their time, giving priority to high value accounts while ensuring minimum service levels were met for low-priority accounts.
The data was used to inform a whole array of marketing decisions: how often to visit clients, which trade shows to exhibit at, and the frequency of client communications.
In the short term, marketing staff were more easily able to plan their individual strategies. In the long-term, high-value customer accounts were retained and grew significantly due to receiving the right level of attention from staff.
Sales increased exponentially and there was far tighter control on margins, though this remained challenging to manage as commodity prices were volatile and sales volumes were difficult to forecast.