Our analysis revealed that our client’s inventory levels had significantly increased, resulting in a stock holding of seven months. Recognizing this overstock situation, we revised the purchasing policy to move away from bulk purchases, as most of their profit was tied up in the last 50% of stock that was not selling efficiently. We then began monitoring the average spend per customer and identified the most profitable departments. Subsequently, we stocked these departments with higher-margin items and premium lines, ultimately adding $300K to the bottom line and $80k in free cash flow. The client was able to use this to invest in a refurbishment and larger premises.

We worked with our client to analyse their accounts by dividing the number of hours into the total revenue, to produce an “hourly rate”. The client was surprised that the mid-sized accounts were highly profitable, while the large accounts were all at break-even, due to write-downs, mis-quotes and unfavourable trading terms. We re-quoted the large-size accounts at a pricing review, lost three accounts and retained the rest, doubling their annual profit. Tracking work in progress and its impact on cash flow, led to a change in trading terms. The resulting increase in cash flow was used to invest in advertising targeting the more profitable mid-sized accounts.