Question

Why is calculating the cost of each potential customer order so critically important to a company? Discuss any difference in the size of the company may make on these costs.

Answer 1

Answer:

1. In a competitive business environment, it is imperative for any organisation to have a vigil to ensure that its competitive position is maintained and continuous trust should be there to improve upon its business so as to earn name, fame and in turn profit. Every organisation operates in an environment that is subject to constant change. Hence, unless an organisation adapts itself to the changing environment, success cannot be guaranteed. So it is very much necessary for introspection into the organisation’s

1. Strengths,
2. Weakness,
3. Opportunities,
4. Threats.

Now from the above it is very much clear that a potential customer always try to look a company from the angle of what its strengths, weakness, opportunities and threats. In other words a company must try to introspect in its above said areas and try to improve upon to make it more strengthen and inculcate the customer friendly atmosphere within the organisation.  

In order to achieve the said objective every organisation maintains the following strictly

1. Code of Ethics
2. Code of Conduct

The above are required to be maintained by the employees of the organisation who are driving force of the organisation. In this regard please note the following

1. Code of Ethics – It is the principles the organisation adopts to be followed by all employees of the organisation. Normally, a good practice is to show the same in the notice board, written on a board and hanging on the wall which helps to remind every day what employee has to follow as a principle and it also helps Client to understand the core value and principles as well.
2. Code of Conduct – It is the professional practices to be followed by every employees of the organisation which includes maintaining proper and positive attitude towards the work as well as maintaining high level of behavior which considered to be the most effective tool for enhancing the Client and Customer relationship. While on the subject it is also to be noted that in practical field this approaches also very much depended on the human relationship an employee could able to develop which normally emerges out of love and affection towards the organisation and the gradual disappearance of fear from the mind of employee about loosing of the job in a very critical situation. In other wards the best Code of Conduct can be evaluated from the ownership an employee has.

Hence, from the above it becomes further clear that in order to stay in the business a company must adopt the above principles and conduct a regular review of the same in order to retain its customer.

The above has been discussed in order to understand the objectives and area of concentration a company must do to attract new customer and mostly retaining existing customer. It has been widely accepted fact that gaining new customer always costs more than the cost towards retaining existing customer. So it is paramount to calculate the cost of each potential customer order very critically in order to achieve the following objectives.

a) Customer should feel that they are being attained exactly the way they want it.

b) Once the customer order are well attained they will happily accept the order and pay the amount without any further query.

c) It will enhance the goodwill of the company.

d) New customer will start stepping in after getting feedback from the existing customer.

e) It reduces the mistakes in making the order final.

f) Customer behavior will become very positive and they will always feel owning the company's brand and start making positive review about the product and value for the money.

g) Mergers and acquisitions becomes very easier due to strong potential customer based order.

h) Can decide about Takeovers.

i) Helps the company to run during declining trends in profits.

j) Helps in becoming more competitive

k) Can easily expand/diversify the activities of the company

l) Can easily expand product range and marketing the same

By doing so the following are the area which gets impacted

a) Strengths - Company becomes more stable and profit earning becomes positive

b) Weakness - In case of any prevalent weakness it can easily overcome the same

c) Opportunities - Always get opportunity of doing business as explained above.

d) Threats - Threats from new company which try to enter the into the area of the company gets reduced.

In view of the above, it can be concluded that calculating the cost of each potential customer order critically is very important to a company.

2. Any difference in the size of the company will have always impact on these costs. Let us now discuss how it influence on these costs.

a) Reduction in size of the company

a.i) Per order fixed cost will increase

a.ii) Demand and supply will get impacted due to reduction in volume of the products produced.

a.iii) Due to short supply customer may start reducing the ordering.

a.iv) It will loose its strength.

a.v) Weaknesses will stat taking place.

a.vi) Opportunities will get reduced.

a.vii) New company will start entering into the area thus creating threats for the company.   

b) Increase in size of the company

b.i) Per order fixed cost will decrease

b.ii) Demand and supply will not get impacted due to increase in volume of the products produced.

b.iii) Due to good supply existing as well as new customer will start ordering more.

b.iv) It will gain in strengths.

b.v) Weaknesses will start decline.

b.vi) Opportunities will increase.

b.vii) New company can not enter into the area thus it does not create any creating threats for the company.

In view of the above, it can be concluded that any difference in the size of the company will have always impact on these costs.