Phil’s Finance Thoughts from 27th November 2019…
Contrasting experiences from the automotive world. I had a great time at Motorcycle Live – the UK’s motorcycle show and the largest event of its kind, an essential experience for the keen biker (me for example – I have been going for, er, decades). Something I noticed this year (apart from the price of the bikes – topic for another Finance Thought…) was the demographic. It seems like guys like me who got into bikes when they were younger are not being replaced by todays younger people – the audience at Motorcycle Live was visibly “middle aged”. And visibly majority male. Why then was the Harley Davidson stand staffed mostly by ladies who appeared to be in their 20s – which you can just about see in the night club like photo above? Harley were not the only stand like this – I lost count of others with a similar set up. It reminded me of the conference comment a few weeks back from Prof. Tomas Chamorro-Premuzic who described marketing and HR as sometimes being referred to as “pink ghettos” – occupations with a mostly female demographic, for no apparent reason. But when your customer base is largely middle-aged male, why are your staff young and female – is this your attempt at equality? This is hardly the experience of 1970s motor shows where manufacturers openly used scantily clad ladies to sell cars – but is this progress, compared to the article in this week’s People Management Magazine from the CIPD, highlighting the car dealer Arnold Clark? Which makes the Harvard Business Review article especially pertinent, giving the business case for greater equality.
Buzzword of the Week –Cost of Sales
Definition – Cost of sales (CoS) is the cost of labour and materials directly involved in creating your product or service. These are also known as variable costs or direct costs.
Other costs, such as staff salaries, marketing or depreciation, should go into the separate operating expenses section of your profit and loss account, as they are fixed costs. (Fixed as in they get paid whether you do more business or not – not fixed as in the cost stays the same!)
Alternate View – for manufacturing, retail and wholesalers these are critical. The essential thing is the Variability – these costs rise and fall in line with revenue. But many businesses – especially services, airlines and technology – are fixed costs based. Control of the fixed cost is what makes the most difference in cost management.