Established for less than two years, this online retailer of Australian foods had a great idea for their business and that was to provide quintessentially Australian foods to expat Aussies living overseas, such as Allen's lollies, Cadbury Chocolates, Arnotts Biscuits etc.
The business proved popular selling to more than 2000 customers spread throughout 150 countries and followed by 10,000 + on Facebook.
The owner is a young entrepreneur who runs two businesses, spending the majority of his working week hands-on in the other business. This business was established with the thought of creating a passive income, but its success is more of a burden and its growth has created a need for it to be run under management. There is also a fear that if the manager leaves the whole business will fall apart because the owner was so busy with his other business.
After looking carefully at the business, BSPA determined that the Gross margin was low, expenses high and the business was unsustainable in its current model. It was identified that this business had a low Operating Leverage which means that the business expenses were mostly variable and would then respond most effectively to an increase in margins.
Detailed analysis of the P&L showed a 10% increase in margins would increase profitability by 700% within 12 months. Understanding the operating leverage gives you a starting place while the business operations are being reviewed.
There was also a list of other tasks identified such as the creation of a strategic and business plan and then managing its implementation, the development of HR policies and manuals, job descriptions, employment performance reviews etc, and the development of key performance indicators and retention strategies for the existing manager.
The very first step was to develop a strategic and business plan that would guide the business forward. Understanding where the business was going and how we were going to get it there.
Profitability was a huge issue, so looking at the margins a decision was made to increase the selling price by 10%. The price rise made no effect on sales as they continued to grow organically. Over the next 12 months, a proper marketing plan was put in place, the owner invested in digital marketing and year on year sales started to grow by more than 100%, the prices were increased another 10% and again with no drop in volume, smart buying saved 15% in the COG’s, another 50% saved in packaging costs, 8% reduction in postage and freight costs because of the increase in volume, things are looking great. We are working ongoing with this client because there is so much to do. Recently we have looked at new market opportunities that could see the business grow by 10 times over the next few years.
In those first 12 months, other tasks were identified and implemented, such as documenting the business operations, creating HR policies and procedures and the creation of budgets and forecasts.
The most important benefit is the business is now profitable and no longer a financial burden. Gross and Net margins have increased significantly, volume is up almost 100%, COGS and expenses are down and profits are up. The business is providing a great income for the owner.