With marketing consuming one of the biggest portions of its total budget, Pascoe set its sights on an ambitious goal: coming up with a way to break down the costs of its mail campaigns, sales, workshops, trade show appearances, and other marketing efforts and compare them against the revenues its individual products, medicinal preparations, and sales areas generate.
To achieve its aim, this leading producer of natural medicinal products commissioned the SAP partner cormeta ag to integrate its customer relationship management (CRM) and controlling. Having previously implemented the industry solution PHARMAsprint (based on SAP Business All-in-One) for Pascoe, cormeta completed this new project in just two months.
Pascoe can now calculate the payments required for a particular activity in its CRM system, as well as incorporate them into its annual budgeting and contribution margin accounting. Real accrued costs then flow from Pascoe’s financial accounting into its CRM system, enabling the company to compare its current situation with its targets – simultaneously in controlling and CRM.
Detailed expense breakdowns
This requires closely integrated CRM and ERP systems, which proved challenging for Pascoe: While the company has used PHARMAsprint in its other areas since 2001, it works with non-SAP software to manage its customer relationships. Wouldn’t it have been easier to rely on the same technology for CRM? “The SAP standard doesn’t support the kind of detailed breakdowns of marketing costs we need,” explains Karl-Heinz Dworschak, head of controlling at Pascoe. According to Dworschak, the company requires a software add-on to display expenses not only by medicinal preparation, but by each individual sales region and campaign, as well.
Pascoe maintains 30 such regions in Germany, 25 of which are regularly occupied by field sales employees. Each of them is responsible for a certain number of physicians, pharmacies, and alternative medicine practitioners within their respective regions. The remaining five sales regions, meanwhile, are supported by a key account manager or the service team at Pascoe’s headquarters.
Direct sales, however, constitute just one part of Pascoe’s business. The company generates nearly 80% of its revenue in wholesale – an area that constantly reports marketing data on how many of each medicinal preparation are sold in each region. This information is transferred after the fact by means of files, letting Pascoe know how sales are proceeding for both its own and competing products. For example, how is a particular vitamin B preparation selling? Where is demand particularly high, and where is the competition doing more business? Pascoe can quickly determine whether a product in a certain segment is gaining or losing market share.
Contribution margin accounting in CRM und ERP
Pascoe sells around 1,000 articles comprising 250 medicinal preparations in various forms of administration (tablets, powders, liquids) and distribution (packages, ampoules, and bottles in different sizes). The company has defined various characteristics and entered them into a hierarchy that is also mapped in its SAP software. Individual products make up the bottom level, with preparations (comprising all the distribution forms of a particular medicine) and groups of multiple preparations forming the levels above. Joining them are Pascoe’s sales regions, which are also stored as characteristics.
These defined hierarchical structures constitute the basis of the company’s new contribution margin accounting, which it implemented as it was integrating its CRM and controlling. Pascoe can thus ascertain how much each of an article’s components – from production to marketing and approval – contributes to its total cost. The intricacies often involved in having a product approved by government authorities, for instance, should not be underestimated.
Pascoe also considers it important to know the amount of revenue and costs accrued in each individual sales region, as many of its marketing campaigns are targeted at this level. This kind of contribution margin accounting based on products, preparations, and sales areas requires data to be transferred between the company’s CRM and SAP systems – hence the necessity to integrate them.
How costs are allocated
The principle: Pascoe’s CRM system collects all of the information on an event as an internal order, including the target group, sales regions, and products to be advertised. It also gathers data on the projected costs, such as for speakers, entertainment, printing and sending flyers, and travel. Based on a distribution formula, the total costs are first apportioned to the sales regions in question, and then to the preparations.
If the planned activity is approved, the entire data record is transferred in a batch run to Pascoe’s SAP system, where it is once again entered as an internal order. The order also contains a settlement rule (based on the distribution formula) for account assignment at a later stage. This automation in transferring cost assessments to regions and preparations is an advantage of the company’s integration.
Its employees in financial accounting no longer have to store settlement rules manually in the system. In billing, meanwhile, they only need to post invoices to the respective internal order; the costs are then automatically allocated to field sales employees (in corresponding sales regions) and preparations based on the stored settlement code. At the same time, this information flows back into the CRM system according to the internal order in question.
Transparency in planned and actual costs across all departments
Pascoe’s marketing and sales departments can thus view the planned and actual costs of campaigns on a single screen. Since the company’s CRM integration, its executives and financial accountants have also gained the ability to call up such comparisons.
This transparency is particularly important in planning the budget for the coming year. Pascoe used to rely on a tedious process of generating these analyses with Microsoft Excel files; the invoices were posted to its SAP system, but could not be transferred automatically into its contribution margin accounting. The information on how to allocate costs to specific preparations and regions was not available. Today, however, the system displays the expenses involved in certain campaigns, sales regions, and products at the press of a button.
In addition, those in sales can see how much has been invested in a particular area and how revenues have developed over time. Combined with the market data provided by its wholesale division, this gives Pascoe an overview of whether it has increased its sales or gained new customers in a region recently targeted by a marketing campaign. The possibility to conduct cost-benefit analyses with a focus on sales has been the main advantage of Pascoe’s integration project.