1.Situation

In MYPRODUCT20 I detailed how in 2007 I became Sales Marketing Director at Spicul, a company with tradition in the bakery’s industry. I was the first employee of New Spicul, a green field project based with a new production’s facility in Chitila / Rudeni, impressive by the capacity and versatility of the production lines that allowed to enter in new market segments (bread, sliced bread, pasta, biscuits, flour, crackers, pastry, Japanese pancakes) and targeted the modern retail (hypermarket, supermarket) with key investments in key account management, logistics, marketing and sales.

I went through a recruitment process for this position, the recruiter being a Dutch consultant Olivier van Lieshout.  with whom I worked together during my activity in Spicul.

Throughout my time in Spicul, I worked with Olivier on the commercial area, having direct access to the knowledge and working methodology of an outstanding consultant with over 20 years of international experience in business, commercial, marketing and financial.

2.Task

The most important aspect of my collaboration with Olivier is that I had the opportunity to learn and work intensively with a new business tool invented by Olivier: Cigar Box.

But what does the Cigar Box mean?

3.Action

The Cigar Box method is based on only 5 parameters:

P-Price per piece

VC-Variable Cost per piece

FC-fixed cost per period

Q – quantity per period

T-tax as a percentage of profit per period.

What are the differences between Cigar Box and standard methodologies?

The standard methods for profit calculation are:

Accounting method: Sales-Total Cost, meaning P*Q –  (VC*Q + FC)

Commercial method: Profit per unit*Q meaning (P – VC – CF/Q) * Q

For 4 out of 5 these parameters, a company’s management can provide a high degree of predictability / control and I refer to P, VC, FC, T.

Instead, the Q sold is the most unpredictable / uncontrollable parameter reason why the Cigar Box method facilitates the business sustainability analysis in relation to the Q quantity across the entire operational chain because both the revenue and the costs are directly related to the Q quantity.

So Cigar Box Method:

-analyses profit as Contributions – Fixed Cost meaning (P – CV)*Q – CF

-calculates Cost per unit meaning Total Cost/Q = VC + FC/Q

Thus, unlike the accounting and commercial methods, Cigar Box:

-evaluates the contribution made by each product to the company’s revenue according to Q

-presents the cost per piece that is not a constant but fluctuates depending on the quantity Q sold

-analyses the contribution of each product to the company’s costs according to Q

-permits the correct allocation of fixed and variable costs according to Q and products

-analyses the profitability per product range, product

-evaluates KPIs even in a daily basis

4.Results

In MYPRODUCT1 I detailed how I started my collaboration with Veteco as builder and commercial manager of the new pet food distribution business unit (Royal Canin), business that generated 2 million euro additional annual turnover for the company.

In this project I used the Cigar Box method to define and implement the business plan, profitability and break-even scenarios, to track and intervene on the main business indicators. See below my working file.

Note: information, numbers are random, used for exemplifying purposes.

5.Key Leanings

Cigar Box invented by Olivier van Lieshout is a tool for evaluating and tracking profitability, sustainability, risks and benefits, analysis that can be done at a general business level, portfolio, product range or even product with KPIs reference to the relevant time period desired by the user (year, quarter, month, week or day), allowing immediate decision and intervention to adjust underperforming areas.

The interesting part is that this model is based on average Excel knowledge so each user can adapt it to own situations and interests.

Notification: MYPRODUCT reflects my real professional experience and expertise as well as my subjectivity. I do have a profound respect for all the companies I collaborated to and for all the people I worked with. It is not my intention to approach any sensitive, confidential or offending information related to companies, projects or people. If you the reader deduct or recognise companies, projects or people in my examples, I kindly ask you to respect MYPRODUCT and my professional and ethic approach and to not share any detail, information, situation, name, company.