New Price = 20% less of old price = $1.00 – (100 x 20%) = $0.80 New CM = New price – VC = $0.80 – $0.65 = $0.15 CM% = new price/CM =$0.15/ $0.80 = 0.1875% $12 * 35% = 0.65 $X * 0.1875 = 0.65 Therefore, X, sales increase needed to keep profit ability = $22.4 = $22,400,000 Pros - Lower prices attracts more customers which increases market share. - Increase in total sales over a short term period - Maintaining the contribution margin of 35 % is necessary. Cons - If sales are too high, there would be serious difficulty in achieving your goal. - Lower prices would cause serious threat for the company. VICE PRESIDENT OF SALES Do-it-Yourself (House- hold) Professional Painters Dallas Fort Worth (DFW) 30% of sales / # of stores = [$1,800,000 / 80 ] = $ 22,500 70% of sales / # of pro = [$4,200,000 / 400] = $10,500 Total Urban Sales = $ 33,000 Non Dallas Fort Worth (Non-DFW) 70% of sales / # of stores = [$4,200,000 / 120 ] = $ 35,500 30% of sales / # of pro = [$1,800,000 / 200] = $9,000 Total Rural Sales = $44,000 Total Sales = $77,000 If the cost of hiring new sales representatives is $60,000 and contribution margin is 0.35 or 35%. Then our Break even Point is Fixed Cost / CM = [ $60,000 / 0.35 = $171,428.57].
7778607 Janmar Coatings 7 3.) Vice President of Sales : to higher sales representatives in the non-DFW as sales are low. There is $60,000 a year to keep one representative and so [$60,000/0.35 = $171,428] to recover a sales representative Pros - The additional sales representative will be able to focus on getting contract outside of the DFW area to increase market share Cons - Appears current sales force has some time to spare, thus indicating it may be a problem of time allocation, not number. Question 6 : What should Janmar do? Why? In my opinion, the cost of introducing a new sales representative is $60,000 a year compared to the advertising cost of $350,000. Furthermore, to recover the extra sales from a sales representative the cost would be $171,428 and breakeven is attainable and easy to mea- sure. All of these options are a lot lower than spending more money on increasing advertis- ing. Compared to the price reduction that the company would maintain its brand image and it would be bringing more professional painters and probably new DIY customers in the long term. It would also be a great way to utilize on of their strengths (knowledge of their sales representatives). Now that we have the information, it is up to the executives and the board to make the decision.
7778607 Janmar Coatings 8
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- Winter '13
- Marketing, DFW, janmar coatings, professional painters