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What is your profit costing you?

09 Sep

Sound cost management makes cents

It is an annoying fact that when providers of services and products decide to increase prices they quote an increase in costs. The truth is that the buyer really does not care about this. What we are willing to pay, depends on… what we are willing to pay. How much it cost the other guy to produce or buy it, frankly does not come into the equation.

Simplistically speaking there are two things that affect your profits, namely revenue and cost. As, nowadays, we are not hearing that many growing revenue stories, especially from the smaller player, it should go without saying that these companies would be looking to cut costs. It doesn’t necessarily. Remember back in the early days of the “crisis” (it’s been going on too long to be called that)? Certain companies “rallied” and issued back-to-profit announcements. Because they fired several thousand consumers. The guys that consume what companies sell. With their salaries. Anyway, even though revenues were plummeting profits showed an increase, not due to multiplication or addition, but because of good old subtraction. It is true that in a healthy company costs should be coming down, but in smart ways, related to phrases and words like efficiency, economies of scale, purchasing power and others we read in books and stuff. Having said this, there are definitely cases in which people, regrettably, must go. But have we cut everything else possible before grabbing the axe?

So, what are you doing about your costs? Do you in fact know what they are or do you limit yourself to a few summary lines your accountant gives you? You need to understand, a) what your costs are and, b) which ones are driving your business. Anything that is not contributing must be rethought. Let me give you a somewhat extreme example. I walked into a ridiculously luxurious office suite. My first question to my associate was, “Bloody hell, Paul! Am I paying for all this?”. Especially in times of frugality and free fall, you need to be taking the oriental approach to value adding and non-value adding and drop the western grey “value enabling” crap. You see, Mr. Client, sitting on a 5K chair really inspires me to improve your customer experience.

By the way, if you don’t start with the blatantly obvious, you will suddenly find yourself doing the panic tango and firing people without having time to plan for the aftermath. And we all know that, especially in business, it take even more than two to tango. Rethink your spending based on value. Every cent saved is flowing to the bottom line.

 
2 Comments

Posted by on 09/09/2012 in Managing numbers

 

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2 responses to “What is your profit costing you?

  1. georgioumarios

    21/09/2012 at 10:43

    excellent article, should be read and followed by many organisations

     
  2. kyriacos

    09/09/2012 at 10:28

    How true!
    Keep up with the good work Andrew!

     

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