How a sudden sales slump & profit crisis turned into a £23m success...
Providing replacement cars to victims of non-fault road traffic accidents is a niche business. That was especially the case for one Cheshire based company as it specialised in high-end brands like BMW, Mercedes, Porsche, and Jaguar. Customers were referred by car dealerships, who were paid a £150 flat commission for each replacement car provided.
Sales had grown every month for three years, and by the time they reached £18m, the plan was to sell the business the following year
But then, in one shockingly sudden month, everything changed.
Sales and gross profit margins dropped dramatically. The entire management team was left stunned. Everyone had got used to sales increasing each month. What made the situation was worse was that there was no clear reason why. Something was seriously wrong.
The Turning Point
To understand the problem meant digging into the business numbers.
It soon became clear that the drop in sales and profit was linked to a decrease in the number of high-end, non-driveable cars being sent to the company.
These non-driveable cars, like a Porsche or Jaguar, were the most profitable for the business. For example, a non-driveable Porsche was worth £13,500 in sales, while a driveable Mini only brought in £1,500.
But something indeed was happening behind the scenes.
The numbers revealed that certain car dealerships had stopped referring these highly profitable cars altogether. It was assumed that the cars were being sent to a competitor.
The reason? A competitor had started offering a £750+ commission per car – way higher than the flat £150 commission which had remained unchanged for years.
The Solution: A Simple, Effective Plan
Immediate action was needed to stop the bleeding. A complete overhaul of the commission structure was needed. The flat £150 commission was ditched.
It was replaced by a new tiered commission system that paid a lot more for high-value, non-driveable cars and a lot less for lower-value, driveable ones.
The best part was that the new structure was cost-neutral meaning that it wouldn’t eat into the company’s profits, but it would make the business more competitive in the eyes of car dealerships.
The Results: Back on Track and Beyond
Within just three months, the effects were clear.
The number of non-driveable cars coming through the door skyrocketed, and sales and profit margins quickly returned to their previous highs. Everyone in the business breathed a huge sigh of relief.
But the transformation didn’t stop there. Thanks to the new commission structure the business was positioned for sale at a time when it was back to peak performance. A year later, the business was sold for a remarkable £23m.
Key Takeaway: Your Numbers Matter
This story isn’t unique. It’s a story of a business who, out of nowhere, faced a challenge, analysed the numbers, and took action to turn things around.
If you’re facing a similar situation or just want to ensure your business stays on the right track, it all starts with having the right numbers AND understanding them.
Ready to take control of your business and see similar results? Let's get started today!
To get in touch you can drop us an email to [email protected] or call one of the team on 0161 410 0020.
Disclaimer
You must take professional advice before making any decisions based on the information that you have learnt here. While every effort has been made, to make sure it is accurate it cannot be precisely tailored to your personal circumstances. This article is for general information only and no action should be taken, or refrained from, as a result of this information. Professional advice should be taken based on specific circumstances in each individual case. Whilst we endeavor to ensure that the information contained in the article is correct, no liability will be accepted by Krystal Clear Accounting which is a trading name of Kim Marlor Associates Ltd or damages of any kind arising from the contents of this communication, or for any action, inaction or decision taken as a result of using any such information.
