Contents of the product sales department concept
The head of any level of management should think systematically.
The component that makes up the economy of a country, a sector of an economy, or a region is an enterprise — a business entity performing it for profit. Let’s understand “what is coming from” and how it is necessary to determine the purpose, functions, powers and responsibilities of the structural division of the enterprise “Department (department) of product sales.”
In the future, the product sales department means the product sales department, a sales branch or any other structural unit of the enterprise, functionally intended to sell its products, which can be:
(1) the sales department of industrial products of any sector of the economy, i.e. enterprises producing and selling finished products, works or services;
(2) sales department of products of a commercial enterprise in any sector of the economy, i.e. enterprises procuring and reselling goods;
(3) commercial branch of an industrial enterprise;
(4) commercial branch of a commercial enterprise;
(5) a pharmacy in the network of pharmacies of the enterprise;
(6) restaurant establishment (buffet, canteen, pizzeria, bar, cafe, restaurant) in the restaurant industry network;
(7) a store in a chain of stores;
(8) hairdresser, beauty salon, repair shop, car service station in the corresponding network;
(9) any other structural subdivision of the enterprise, functionally designed to transfer ownership of the products of the enterprise to customers and to receive income from economic activity.
Under the efficiency of the enterprise refers to its ability to generate (create) net profit, positive net cash flow and increase its market value. Accordingly, the objectives, key performance indicators and performance indicators of the enterprise are the amount of net profit, positive net cash flow and the value of the market value of the enterprise. The goals of enterprise efficiency are its highest economic goals.
For the sake of achieving the required efficiency, a particular enterprise carries out its business activities. Ineffective activity does not make sense. Therefore, all management objects that make up the enterprise should be optimized by the criterion of the optimal increase in the efficiency of the enterprise. The required efficiency of the enterprise is ensured by the achievement of the required performance and the required efficiency of economic activity.
One of the management objects that make up the company is the product sales department. As part of the budget management technology “How to”, the efficiency of the enterprise product sales department is the center of financial responsibility (CFD) “Marginal Profit Center” (CMP). The main budget indicator for it is the marginal profit of the sales department for the short-term period of activity (week, month, quarter, year).
To achieve the required efficiency of the enterprise, the product sales department must generate (create, produce) for the period of activity the required amount of marginal profit. The required marginal profit is the highest goal that the sales department should achieve.
The connection between the net profit of the enterprise and the marginal profit of the enterprise is unambiguous: the greater the marginal profit of the enterprise, the greater the net profit of the enterprise. In the general case, the marginal profit of an enterprise is the sum of the marginal profits of all sales departments of an enterprise’s products. As a consequence, the actual management problem is always the achievement of the required value of marginal profit by the sales department of products.
In the CMP, its revenues from the sale of products go first to cover its direct variable costs, as a result of which its marginal profit (or marginal loss) is formed. Then the marginal profit of the CMP should cover its direct fixed costs, which are imputed, i.e. for their composition and size is responsible manager of the senior financial hierarchy of the CFD, resulting in a positive contribution to cover the fixed costs of the enterprise, the remainder of which is the net profit of the enterprise.
From the model of calculating marginal profit, it clearly follows that the more marginal profit of the sales department, the greater the marginal profit of the enterprise, the greater the net profit of the enterprise, all other things being equal. Hence the law of effective enterprise management: in order to optimally increase the net profit of an enterprise, it is first necessary to optimally increase the marginal profits of each sales department, which will increase the marginal profits of the enterprise, which is the sum of the marginal profits of the product sales departments (sales branches), if there are several of them.