Tom the traveling salesman, good enough at his job to remain competitive in an Internet-based economy, needs repairs on his vehicle, essential in his line of work. He can’t work without it.
Gary’s Garage estimates $500 and two days to complete the repairs. Anne’s Automotive estimates $700 and one day to complete the repairs. Tom is pretty sure he can do this himself – he Google’d it after all – for $100, but it will take him two days at least. In the end, since Tom is a salesman – not a mechanic – it will end up going well over the projected budget for both materials and time, at $200 and four days.
Assuming that both the shops will be able to complete the repairs in the time stated and exactly at the target estimate, which option should Tom choose?
To determine this, it’s necessary for Tom to answer several questions and compare the answers side-by-side. A chart (really a very simple spreadsheet) is a great way to do this.
In order to fill in this table, Tom looks back at his sales data for the last few years and finds his average revenue per day versus his cost of goods sold, $250. Tom also budgets $30 per day for gas to be used in the course of his sales calls.
In this case, Tom would save $20 by using Anne’s Automotive: that’s almost enough for another day in the gas budget. Additionally, he loses only one day on the road, connecting with his clients and fulfilling his responsibilities.
For the sake of argument, let’s see what happens if Tom only makes $150 profit each day he spends on the road. The math now looks like this:
Gary’s Garage: $740
Anne’s Automotive: $820
Tom’s home repairs: $680
Tom has the lowest financial investment, if profiting only $150 a day, when performing the repairs himself. He saves $140 (almost five days of gas money) over Anne’s Automotive and $60 over Gary’s Garage (two days of gas money).
However, he would also damage his reputation with his customers by being unavailable and miss the opportunity to meet new clients. There are other questions as well. Is this a busy time of year, where the true money lost per day might be even higher? Or is it a slow time, where Tom saves more by opting to perform his own repairs? Does Tom have an important meeting already scheduled on that second day? Is some of his inventory time-sensitive, so that he’ll lose even more as inventory reaches expiry dates?
In our next example, we’ll look into more detailed ROI considerations by analyzing Tom’s average daily sales calls, the number of existing client relationships he maintains by visiting clients during the course of each day, the number of calls converted to sales each day, and the number of calls that become sales later in a twelve month period.