Sales increases, however, always have costs that dilute their impact. In service and manufacturing firms alike, the costs of sales move in generally predictable patterns. Usually these costs are a percentage or percentage range of sales. In addition to sales costs, the firm also faces operating expenses. These operating expenses represent the firm s costs to make available the services or goods for its customers, and include such items as adequate customer service and production capacity maintenance.
All figures below are in thousands of dollars.
Purchased raw materials savings represent additional leverage that also flows to the bottom line. Manufacturing firms usually have a lower percentage of sales costs than the example above, but higher operating expenses. Unlike service businesses, manufacturers must also spend money for the raw materials and facilities needed to produce the goods they sell. The higher the percentage of purchased goods and services to sales, the greater the leverage that purchasing savings yield . A purchasing strategy can deliver superior value to the firm and its customers.