3.5 Calculation of profitability

The bottom line for a market organisation of MTPRO is the incremental sales, operating profit, respectively the incremental profit that the KAM concept yields. The following calculation methods provide a clear picture on this financial data.

(1) Fully loaded sales force costs and break-even sales

First of all, the fully loaded costs for a Key Account Manager are determined. The benchmark for this determination is an above-average performing sales engineer. According to interviews with several Business Area Managers the figure is about 140 k USD on average (confidential data, no official interviews will therefore be stated).

Table 6 exhibits the fully loaded sales costs and the break even sales for a Key Account Manager.

sales force costs and break-even sales (Source: Confidential data)" class="wp-image-9076 size-full" height="193" src="https://sgbs.ch/wp-content/uploads/Table-6-Fully-loaded-sales-force-costs-and-break-even-sales.png" width="644"> Table 6: Fully loaded sales force costs and break-even sales (Source: Confidential data)

Sales above 400 k USD only represents an operating profit without taking into account the current revenue with the selected key accounts. The approximate 10% share of share of wallet, according to the calculation in chapter 3.2.2, related to the annual purchase volume of 3600 k USD (figure 9, page 19) equals an estimated current revenue of 360k USD. That means break-even sales to achieve incremental profit is 760 k USD (360k USD + 400k USD).

(2) Sales targets

Secondly, a target planning to determine achievable share of wallet with the selected key accounts is established. It has a timeframe of four years. The share of wallet targets are set according to realistic estimations and built on the estimated current share of wallet of 10%, shown in chapter 3.3.2. Table 7 presents the realistic estimations for all 15 key accounts.

Table 7: Sales targets (Source: Based on my own estimations)

As a matter of course there will be variations of the share of wallet with the individual key accounts. The average percentage figures in table 7 are used for the following calculation of incremental sales and profit.

(3) Incremental profit

Thirdly, based on the sales targets, the known potential as well the estimated current share of wallet the incremental profit across the 15 key accounts is illustrated below.

Table 8: Operating profit and incremental profit calculation

1 Source: According to sub-chapter (1) Fully loaded sales force costs and break-even sales, last paragraph
2 Source: Multiplying estimated sales (e.g. 1 st year 648 k USD) by the gross margin of 35% and then subtracting the fully loaded KA Manager cost of 140 k USD
3 Source: Multiplying incremental sales (e.g. 1 st year 288 k USD) by the gross margin of 35% and then subtracting the fully loaded KA Manager cost of 140 k USD

In the first year an operating profit of 87 k USD could already be achieved but without gaining any incremental profit. In the 2 nd and 3 rd year significant incremental profits are accomplished that makes the KA concept a profitable investment. If it goes to plan with 75% share of wallet in the fourth year, the incremental profit of nearly 700 k USD would be a big contributor to the overall profit of the PRO division in the individual market organisations.