Today’s 2014 Profit Checklist is about the relationship between cost cutting and profits and it is for those companies that are not as profitable as you would like to be.
The premise: Can you cut costs and become more profitable?
Certainly spending less than you make is a key component to profitability. And the beginning of the year is a great time to look at your spending and make sure that you are spending smartly, in line with your goals for business growth.
There is definitely a smart way to cut costs that leads to profitable
growth (i.e. still allowing revenue generation) and another way that
will stifle progress (i.e. business stagnation).
As
in most things that we do at Solutionz, we urge you to take a customer
centric view of everything, including cost cutting. That is what we did
to get through our own tough times.
NOTE: If you didn’t read yesterday’s blog about Customer Intimacy and Profitability, we recommending doing that before you continue, as we refer to the exercise from that blog.
I’d like to share a personal story from the economic crisis. When the crisis began, like most industries, companies in the travel industry just flat out stopped spending on anything non-essential. Oddly, consulting fell into this category, including growth and strategic consulting, which is my focus.
As a result of the corresponding impact on our company’s revenues, by 2011 my Controller asked me to cut back on
my travel and conference attendance in order to save money. His premise was that I could use Skype or other teleconferencing tools to meet with prospective clients and just spend more time talking to people on the phone. While
on the surface that made sense, in order to jump
start my consulting business, face to face dialogue was essential, as was
attending industry conferences.
If you will remember, in 2011, we were finally seeing some signs of
recovery. Since companies had made such deep cuts in 2009 and 2010,
they were actually needing consultants to bridge the gap until they
could replace the seasoned people that they had laid off. So while my Controllers intentions were good, his approach would actually have stifled our recovery. I had to strike while the iron was hot and I had to get creative in order to get some new business. I didn’t stop traveling, but I did stay with friends, versus staying in a hotel and I planned further ahead to get advanced purchase airfares. I rented a house for conferences and shared with business colleagues, saving us all money on a per night basis. A friend who lived locally would then give us a ride to the conference, to save on car rental expenses. While these things may be a bit extreme for your team, I can assure you that if you ask them to find a way to still be customer (and revenue generation) centric, they can find ways to be creative and still get the job done.
Your people are your greatest asset and your greatest resource to get you to the next level of profitability. Empowering them to do so will have amazing positive consequences on your company’s culture.
So here is your checklist for tweaking your profits:
- First evaluate your non-essential costs, starting from the outside of the circle inward (see yesterday’s exercise). In looking at their impact on the inner circle, determine what would happen if you simply did not spend in this area, or if you shifted something else, such as eliminating multiple levels of permission for certain decisions or multiple steps in a process that may not be adding value to the customer.
- Think long and hard before you eliminate your front line (either in sales or service), as supporting customers and tapping into them for new revenue streams is never “non-essential”. Longer term business development may be able to be deferred, but never ever cut new sales, as it is the lifeblood of any business. If you didn’t read yesterday’s blog about distribution channels, we recommend you go back and look at whether you can sell your product through third parties that may reduce your direct salary expenses, without the loss of revenue.
- See if you need to re-allocate any expenses to revenue generation, making sure that your headcount and expenses in business development and sales are in line with your growth goals.
So can you cut your way to profitability? Be smart about it. Cut from the outside in if at all possible. And if you haven’t done this exercise, put it on the agenda for your next staff meeting.