STATISTICAL DEPARTMENT
One of the chief functions of the comptroller's office is to gather statistics which tell what is being done in every branch, department, and division of the business. The purpose of these statistics is to show the results of these activities—the gross volume of transactions, the cost, and the result in net profits. When assembled in the form of intelligent reports, these statistics present an understandable history of the business.
The statistical department may be considered as the cost department of the commercial branch. Manufacturers recognize the necessity for comprehensive statistics in the manufacturing branch; they realize that they must know what their goods cost to manufacture; but in comparatively few enterprises is the importance of commercial costs recognized.
In the factory, costs are figured down to the most minute detail; what it costs to perform each operation on every part of the completed whole is known; the efficiency of every man—what he costs in wages, in power, and general expense, and the cost of every bit of material he uses—all of this is told by the cost accounting system. What it costs to sell the goods is usually a matter of guess work.
To know what it costs to run a business—to know commercial costs—is just as important as to know manufacturing costs. Both are necessities if the business is to attain its greatest possibilities.
What are the actual profits of this or that department?
How much net profit is there in handling this commodity?
Does it cost more to send a salesman to that little town, ten miles off the main line, to take Jones' order than the profits on his business?
Is there as much profit in working this territory as some other?
Measured by the standard of net profits—not volume of sales—is Brown a profitable salesman? Compared with White, what is his efficiency?
These are some of the questions to be answered before it can be claimed that the statistical department has reached its highest state of efficiency. The success of modern merchandising is measured, not by the volume of business transacted, but by profits. In days gone by, the merchant liked to be able to say that he sold more goods last year than any of his competitors; today he is better pleased if he has made the most money. A net profit of 10% on a business of $500,000.00, is more attractive than a million-dollar business without profit.
Commercial costs may be divided into two classes—sales costs and administrative costs. Of the two, sales costs are the more important; if sales costs are not kept down, there will be nothing left from which to pay administrative costs.
Sales Costs. In the broadest interpretation, sales costs include every expense properly chargeable to the sale of goods. For statistical purposes it may very properly be divided into direct and indirect, or general selling expense. Direct sales expense is made up of salaries and traveling expenses of salesmen—items which can be definitely determined and charged against definite sales. Indirect sales expense is made up of advertising, salaries of the sales manager and his office assistants, expense of entering orders and billing, packing and shipping expense, and all similar items properly chargeable to the expense of marketing the goods—items which, while chargeable to sales, cannot be applied directly to individual sales, nor to specific territories.
Figuring sales costs is a specific function of the statistical department which is sometimes referred to as profit figuring—an appropriate term, since the principal object of gathering sales statistics is to determine profits. As a preliminary to figuring profits, it is necessary to have an accurate record of the cost of the goods sold. In a manufacturing enterprise, it is expected that this information will be supplied by the cost department; in a trading business, the statistical department must make the calculations.
The first step is to obtain a record of all goods received. This can be done most easily by obtaining duplicate invoices, which will be supplied by those from whom goods are purchased, if insisted upon. To the invoice must be added the freight and cartage—items which must be supplied by the accounting department. This gives the total cost, laid down, and should be divided to show costs per unit—as yards, dozen, pounds, barrels, or tons. On a mixed shipment it is not difficult to apportion the freight to the different commodities. Every freight bill shows the rate at which the shipment is billed, and the total can be apportioned by weight on the same basis.
To insure a permanent record of cost prices, it is best to register each shipment received, with its cost. This register should be divided according to commodities, providing a separate record of each one. A loose-leaf book is best for the purpose.
A suitable form is shown in Fig. 1. This sheet is headed with the name of the article or commodity, and each sheet is used for a record of receipts of a single article. The record includes date of invoice, date received, from whom, lot number, quantity, price, amount of invoice, freight and cartage, total cost, and cost per unit. Each lot of goods received is given a lot number, these numbers being consecutive for each commodity.
The sheet serves the double purpose of a record of receipts and a price list. Both the quantity and total columns are footed, the footings being carried forward to the end of the month. All sheets are filed alphabetically by commodities, subdivided by departments, the current sheets always being on top.
Records of Shipments. Before sales costs and profits can be figured, the statistical department must be supplied with records of shipments. This may be accomplished by providing an extra copy of the invoice, which is easily done with modern billing systems. To save transcribing, the copy for the statistical department should be wider than the original invoice. The extra width allows for the addition of special columns needed in figuring profits on the shipment, as shown in Fig. 2. This form has added columns for total cost, gross profits, sales expense, net profits, and per cent of net profits.
When these invoice copies are received in the statistical department, the price lists, Fig. 1, are referred to for cost prices. Here the use of the lot number assumes importance, as prices are obtained for the specific lot numbers shown on the invoice, resulting in actual rather than estimated profit figures.
After serving their purposes in the tabulation of other data, explained later, the invoice copies are filed alphabetically, keeping all invoices to the same customer together. Either a vertical file or a post binder may be used for this purpose.
Fig. 1. Register of Merchandise Received
Returned Goods. Another very important record in profit figuring is that of returned goods. Profits may be figured on the invoices, but if accurate profits on the business of a customer or a salesman are to be recorded, returned goods must be considered.
Fig. 2. Copy of Invoice for Statistical Department
When goods are returned, it means a loss of anticipated profits, and should be considered in the same light as an actual loss. In a well-managed business, returned goods are kept down to a minimum; if they increase above normal, an investigation into causes is in order. Repeated returns of the same merchandise indicate a defect in the merchandise itself; if those from the territory of one salesman are frequent, an inquiry into the salesman's methods is necessary—he may have the fault of loading his customers too heavily, or of adding to their orders—all of which are added reasons why a record of returns should be kept.
A blank for a monthly record is shown in Fig. 3. This record shows the name of the department from which the goods were sold, the commodity, name of customer, price at which sold, the cost—including selling cost—the loss, and the name of the salesman. From this sheet, all data necessary for complete records can be tabulated.
Fig. 3. Report of Returned Goods
Salesmen's Records. One of the special benefits—perhaps the chief benefit—of a profit-figuring department is a record of the work of each salesman. Not merely the volume of his sales, but the profits on those sales, measure his worth to the house.
The salesman whose sales are largest in quantity, or even in dollars and cents, is not necessarily the best salesman. One man may sell a thousand dollars' worth of sugar, while another sells two hundred dollars' worth of tea and makes more money for the house; one strives for volume—making price concessions to secure a big order—while the other is content with smaller sales at a good profit.
In the final analysis, profits determine the efficiency of the salesman. His salary may be large or small; his expense high or low; but he is not efficient unless his business shows a net profit.
To tabulate the sales of each salesman, so that a complete record of his work may be seen at a glance, is then, of the utmost importance. The first step should be to make a record of what he sells—how much calico and how much silk. On a loose-leaf sheet, ruled as shown in Fig. 4, a record of a salesman's sales of a single commodity may be kept; from these sheets, a record of his total sales can be tabulated.
The head of this sheet shows the name of the commodity, the name of the salesman, and the month covered by the record. A detailed record is kept of each day's sales, showing quantity, cost, sales, gross profits, and per cent of gross profit. At the end of the month returns are deducted—the information being obtained from the returned goods report, Fig. 3, leaving the net record. This sheet, which is loose-leaf, is filed alphabetically by salesman's name, the sheets for each man being in alphabetical order by commodities.
A record of the salesman's total business is made on the loose-leaf form shown in Fig. 5. This record is made up from the totals of the commodity records, Fig. 4, and the form has the same columns, with an additional column, headed % of total. In this column is entered the per cent which the total sales of each commodity bears to the salesman's total sales. The profits on the salesman's business usually increase in direct ratio to the increase in the per cent of sales of the higher-priced specialties.
This total record is, of course, made up at the end of the month, only the monthly totals being shown. A recapitulation is made at the bottom of the sheet. In the right-hand, or credit, column the gross profit is brought down; in the left-hand column, sales expense is entered, the several items being separated. First, the salary of the salesman and the amount of his traveling expenses are entered and footed, the total being the direct sales expense. Following this is entered the general sales expense that should be charged against the business of the salesman, this item being supplied by the accounting department. The total sales expense is then extended in the credit column and deducted from gross profits, leaving net profits—the real measure of the salesman's value.
Fig. 4. Record of Salesman's Sales Arranged by Commodities
These sheets should be filed in the same binder with the salesman's commodity sales records. A separate index may be used, or they may be filed on top of the commodity sheets, bringing the entire month's record together. To make identification easy, they should be of a different color from the commodity sheets.
Sales records such as these give a complete history of the business of each salesman; they tell the whole story in language most easily understood by the manager. The longer they are kept, the more valuable the history becomes.
Mail Orders. In a business in which occasional mail orders are received, sales of this character may be grouped under some such caption as home office, and treated in the statistical records in the same manner as the sales of one salesman. Where an extensive mail-order department is maintained, it may be advisable to keep records of the business of each mail-order salesman.
Expense Distribution. General sales expense must be distributed, on some equitable basis, over the total sales. There are two logical factors on which this distribution may be made, total sales and cost of goods sold. The latter seems to be the most equitable. If based on total sales, the distribution may actually penalize the salesman who is really the most profitable. For example, one salesman may sell for $2000.00 goods which cost $1500.00, while another will obtain $2200.00 for the same goods; if the expense is distributed on the basis of total sales, a larger amount is charged against the business of the latter salesman when the increase is all profit. On the basis of cost, the same amount would be charged against the business of both salesmen.
When the total sales expense and total cost of goods sold is ascertained, the former is divided by the latter amount to obtain the correct percentage. This is then added to the cost of sales of each salesman.
While, as a rule, general sales expense should be charged against the cost of all goods sold, there are certain exceptions when a part of this expense should be charged against specific sales. For example, a manufacturer may make a special appropriation for advertising his product in a certain state, using local papers, street cars, and bill boards. In that case the advertising is very properly chargeable against the business from that state; though it might be advisable to distribute the amount over several months.
Fig. 5. Record of a Salesman's Total Sales
A mail-order department involves certain expenses, none of which are chargeable against the business produced by the salesmen. Included in this special expense are such items as postage, stationery, printing, and stenographers' salaries. This expense should be charged against the business of the department and, if records of the work of each salesman are kept, it must be prorated on the basis of cost of goods sold by each.
Total Commodity Sales. A record of the total sales of each commodity is necessary in order that the profit in handling the commodity may be determined. Sometimes it is found that a commodity which is apparently being sold at a profit is actually sold at a loss, when the actual selling costs are determined. Or, one salesman may sell the commodity at a loss, while others sell it at a profit.
The form shown in Fig. 6 is used for a summary of the sales of one commodity. At the end of the month one of these sheets is headed with the name of each commodity and the totals entered from the salesman's commodity records, Fig. 4. Opposite the name of each salesman is entered the quantity and amount of his sales, following which is an important column headed % of whole. In this column is entered the percentage which the sales of the one salesman bear to the total sales of the commodity. If Bacon sells 40% of all the tea sold by the house, it is shown by this report; if he sells 50% of the sugar, it is shown just as plainly. Not only how much of a given commodity is sold, but who sold it, is recorded on this monthly summary.
In the columns following total sales, the total cost and gross profits are entered. From the gross profit is deducted the sales expense—this being calculated on the percentage shown for total sales expense in the recap at the bottom of the salesman's sheet, Fig. 5, leaving the net profit. In the last column, the per cent of net profit is entered. The footing at the bottom of the sheet shows total amounts and the percentages of sales expense, and net profits are calculated on the basis of these totals; this gives the average expense and profit on the total volume of sales.
Department Sales. Next in importance to a knowledge of profits on a single commodity is a knowledge of the results produced by a department. This necessitates a record of departmental sales. Sales and profits measure the efficiency of a department, just as they do of a salesman.
Fig. 6. Record of Total Sales of One Commodity
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The necessity for departmental records depends on the business. A manufacturer who produces but two or three articles needs only records of sales of commodities; a wholesaler requires records of sales of classes of goods. In a wholesale business, departmental divisions are distinct; each department is in charge of a head, and the record of the department is his record.
In a comparison of departmental profits, the percentage of net profits should not be followed blindly. Certain departments are not money makers. To a certain extent it is possible to discontinue unprofitable lines, or even departments, but in some businesses it is necessary to maintain departments which are not profitable. In the dry goods business—either wholesale or retail—the margin of gross profit in notions is so small that it is doubtful if, when all legitimate expense is deducted, a net profit is realized. The salesman for a wholesale house whose sales of notions is largest, has made the poorest record; the manager who has kept the sales of the notion department at the lowest price—at the same time keeping his stock down—may be the most efficient.
For a record of departmental sales the form shown in Fig. 7 may be used. The data for this report is secured from the commodity records, Fig. 6. For each commodity, the quantity and total amount of sales are entered. Following this is a per cent column in which is entered the ratio which the sale of each commodity bears to the total sales of the department. The columns which follow are the same as on the commodity sales records. A loose-leaf form should be used, and this may be filed with the commodity records—the departmental record on top, with the commodity records arranged alphabetically underneath.
The forms described provide detailed records of the business of each salesman and each department (classified by commodities), records of goods received, and of returned goods. From these records, complete trading statements can be made for each department, or for the entire business.
Trading Statements. Reports in the form of trading statements made from these records give the manager the facts in which he is specially interested; they show him the profits of the business and the sources of the profits.
Fig. 7. Record of Sales of a Department Divided as to Commodities
A monthly trading statement should be made for each department, in order that the total operations may be seen at a glance. All of the essential facts are shown on the department report, Fig. 7, but a properly constructed trading statement affords an opportunity for valuable comparisons. While the fact that a department has made a net profit of $7864.20 this month is interesting, these figures take on added interest when compared with last month's profits.
A form for a monthly departmental trading summary is shown in Fig. 8. In this form, the trading statement for the current month is entered in the two columns headed trading. First, the total amount of sales is entered in the credit column; then the value of stock on hand at the beginning of the month is entered on the next line, in the debit column. When the profit-figuring department is organized, it is necessary to have an accurate inventory in each department that this trading statement may be started correctly. If started on a correct basis, the record becomes perpetual. To the amount on hand is added the value of goods received, as shown by the merchandise received reports, Fig. 1. From the total, the value of the inventory at the end of the month is deducted, the remainder being known as the turnover—the cost or inventory value of goods sold. To find the value of the inventory an actual count of the goods on hand is unnecessary. The value may be found by deducting from the total the value, at cost, of goods sold, which is the footing of the total cost column, Fig. 7. This inventory is, of course, the amount shown as on hand at the beginning of the next month.
The difference between the turnover and sales is the gross profit—being the amount necessary to balance the debit and credit columns. The gross profit is brought down and entered in the credit column. Sales expense is entered in the debit column, the difference between this amount and gross profits being net trading profit, for the current month.
The three columns at the right are for comparative figures. In the column headed to date is entered the total sales, turnover, gross profits, expense, and net profits from the beginning of the current fiscal year to date; in the two columns next following, the same facts are entered for last month and last year.
Fig. 8. A Form for a Monthly Trading Summary
As a rule, these monthly trading statements for each department give the manager just the information he wants; but, when there are a large number of departments, it is sometimes advisable to tabulate these statements, giving one complete record. A form for such a report is shown in Fig. 9. No detailed explanation of this report is necessary, the columns being arranged for the same information as given on the department statement. The only exception is the inventory column, which is intended for the current inventory only. In the three comparative columns at the right, net profits only are entered. This statement gives a history of sales in a nut shell.
Customers' Profit Records. To know the value of each customer, as measured by the profits on his business, is as important as a knowledge of the value of each salesman. It is for the purpose of obtaining this information that columns for calculating net profits are added to the statistical department's copy of the invoice, Fig. 2.
Detailed records of purchases of each customer, divided by commodities, are unnecessary, but there should be a summary showing total purchases and profits. Detailed information about individual shipments and separate commodities can be obtained from the invoice copies.
Fig. 10 shows a form for a customer's record on a 4-in. X 6-in. card. This form provides for monthly records only. At the end of the month the total purchases and total profits are obtained from the invoice copies, and the amounts entered on the card. The card is ruled for a two-years' record.
These cards should be filed geographically, the name of the town heading the card. If there are several customers in a town, their cards should be arranged in alphabetical order. State boundaries need not be followed; it is usually better to file the cards according to salesmen's territories. This makes a combined customers' and territorial file, and if a record of the business in a town or state is wanted, it can be obtained from the cards. If desired, a new card can be inserted for a total record of each town or group of towns.
Value of Profit Figuring. The value of the records described can scarcely be overestimated. To know the profit-making ability of each department and each salesman; to read at a glance the value of every town and every customer; to know the cost value of goods sold and the exact condition of the stock at the end of every month, these are the facts which enable a manager to size up his business.
Fig. 9. Departmental Comparative Trading Statement
The man who lacks these facts—who is obliged to wait for them until the end of the year, and then get only a part of them, does not have a grasp of his business, and cannot expect to bring it to the highest possible state of efficiency. That more managers have not insisted on having these facts before them is doubtless due to one or both of two causes: failure to appreciate their value; and the belief that dependable statistics of this sort were unobtainable without too great an expenditure of labor. Neither is borne out; all the evidence is to the contrary.
Fig. 10. Record of Purchases and Profits of a Customer
As to their value, little need be said. The fact that the most extensive enterprises find it profitable to compile statistics setting forth the most minute operations in every department is sufficient evidence of the value of corresponding statistics to the smaller merchant or manufacturer. If a great railway system finds it not only profitable but necessary to compile statistics showing the cost of repairs per ton-mile for every engine in its service, arranged for a comparison of the efficiency of individual locomotives, surely the merchant will find it profitable to analyze his profits. An analysis of the profits and losses of a wholesale grocer, showing how much he has made on tea; how much he has lost on sugar; what profit has been produced by a certain salesman; the profit value of a customer, is of as great value to him as a knowledge of the cost of repairs on an individual car to the officials of a railway.
To the man who has made no attempt to secure them, the compilation of these statistics may seem an endless task, not justified by their value. Actually, the magnitude of the task is, to a great extent, governed by desire; a man is quite likely to obtain what he really wants, and as his desires increase the difficulties decrease.
When it comes to the actual work of preparing these statistics, the difficulties are found to be really minor ones. The main thing is to do the work every day; to record the transactions of a single day does not involve an undue amount of labor, but if allowed to get behind, the task assumes appalling proportions.
Modern billing systems make it possible to tabulate certain of these statistics when the bills are made. The adding machine is also of inestimable value in statistical work; computations which would involve a whole day of hand-and-brain work are made in an hour on a modern adding or calculating machine.
In deciding what statistics should be compiled, the nature and needs of the business must be considered. It is usually unnecessary to use as the unit a single brand of a given commodity. A wholesale grocer, for instance, would not find it necessary to make separate records of each brand, or even each article, in canned goods. They would be divided into classes—as vegetables, fruits, and meats, and each class would be treated in the records as a single commodity. When taking on an entirely new line, he might wish to compile separate statistics for a time, but when the fact that the line is a profitable one has been established, the special statistics would be unnecessary.
Again, one house will find it advisable to go into certain details not considered necessary in another establishment. For example, one house has, as a result of the facts revealed by their statistical department, established a system of bonuses to their salesmen based on the profit percentages of their business. This necessitates a record different from any of those that have been shown. This concern has grouped the goods in each department according to percentages of gross profits—as 5%, 10%, 20%, 25%, etc. Each salesman is given a monthly quota—based on salary, territory, and previous sales—which he is expected to reach. This quota specifies not only the amount of sales but the percentage of profit; each $100.00 of sales is expected to include not more than a certain amount of 5% goods, nor less than a given amount of 25% goods, the exact ratio of each being given. If a salesman exactly equals his quota, maintaining the percentage prescribed, he is given a small bonus; if he exceeds his quota and maintains the prescribed percentages, or increases the percentage of sales of the more profitable goods, his bonus is increased in proportion to the increased profits—the greater the percentage of profits, the more rapid the increase in the bonus. On the other hand, if his sales of goods sold at a small profit increase, he is penalized by being denied a bonus, no matter what the volume of his sales.
Fig. 11. Salesman's Comparative Sales Statement
This bonus system, which is an adaptation of the bonus wage system used in factories, has the effect of increasing the sale of the most profitable goods. When a customer places an order for goods in which there is little profit, the salesman—who cannot refuse the order—is given an incentive to push the sale of more profitable goods; he must do so as a matter of self-protection.
To determine the bonuses, statistical statements differing from those already shown are necessary. These statements must divide sales according to percentage groups, rather than by commodities, as shown in Fig. 11. The data for this statement is taken from the commodity sales statement, Fig. 4, and with an adding machine can be tabulated very quickly.
Another house, which does an exclusive mail-order business, keeps accurate records of the sales resulting from circular letters, charging the cost of the letters, including postage, to those sales. Records are also kept of the sales of each correspondent. When an order is received, the correspondence record is examined and, if the order is in response to a dictated letter, the correspondent receives credit. Each correspondent is required to keep a record of the number of dictated and form letters that he uses, the cost of which is charged against his sales. At the end of the month results are tabulated showing the percentage of orders secured from circular letters and from dictated letters; the amount of business from each letter of each correspondent; and the percentage of cost to the cost of goods sold.
These and many other statistics can be tabulated, and for each a special form is needed. The classes of information to be presented in statistical form depend on the business. When it has been determined what information will be of greatest value, forms should be prepared which will make it possible to tabulate the desired facts with the least labor.