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Saving Your Way to Success

Written by: Bill Boyer

Article Overview: How many times have you heard small company owners say they can cut costs to save their company?

Saving Your Way to Success

How many times have you heard or read that a company has initiated cost savings plans as the way to achieve a turnaround and to restore the level of profitability and success they previously had? We all have countless memories of these activities and unfortunately many of us have been caught in “cost reductions”.

The analyses of costs in all business are very important and benefits are to be achieved through these analyses. Large organizations should always be reviewing costs and looking for reductions. And even small organizations should engage in that activity every three or so years. For example, I know some small companies that have reviewed the number of cell phones they had and the plans they had contracted for each phone. They were shocked by the savings they could achieve by determining which employees should have phones and what plan they should have. And why should an employee who uses the phone infrequently have a plan with a high level of minutes or vice versa?

There have been quite a few studies made on activities that result in profitability improvements. Most of the studies came up with basically four approaches.
1. Costing cutting. Review all cost elements of the past few years, analyze and initiate reductions where necessary.
2. Increase sales to existing customers. Put much effort into contacting existing customers and determining what additional current products or services you can sell them.
3. Increase sales to existing customers by adding value to your service or products. This can encompass many activities. You can simply “supersize”: sell more of the same thing. You can upgrade your product or services. Add new products or services. Or just increase pricing.
4. Find new customers.

Where is the real money? Cost cutting is the easiest, but will probably have limited success on the bottom line. We all can remember “Chainsaw Al” Dunlap. Where are his companies today? The hardest is finding new customers, but that activity will definitely yield the most significant long range improvements. If you do not constantly seek new customers, you will lose ground. Everyone has attrition with their customer base. Customers can go out of business or get sold/acquired, a competitor of theirs buys their business, they replace your product or services with a newer model/concept, etc.

Real-life example

Earlier in my career I worked for a Fortune 500 manufacturing company. Like many of the large corporations at that time, we contracted with one of the best know strategy consultants. Their major emphasis was cost reduction. I was the company liaison with these consultants. We spent a couple of years analyzing costs and facilities and making many presentations across the country to company officials. Major cutbacks were made including plant closings. During this entire episode, no emphasis was made on developing new products, product lines or technological product improvements.

The cost analysis was necessary and achieved benefits. And many studies were done to bring in new technology to improve manufacturing efficiency or information flow. Unfortunately, the focus on the top line was lost.

What happened to this company? After consultants exited the company, more plants continued to be closed. This time is was for the lack of business. Later, the company had to fight off an unfriendly bid, was privatized, and later declared Chapter 11. The remainder of the company has now been absorbed by a major buyer of distressed companies. It is still functioning as a trade name, but its product offerings are a small percentage of its earlier product lines.

The company still probably would have had many problems, but the lack of the sales effort definitely accelerated its demise. It is only a player in today’s market because it has developed some proprietary lines that have given it a niche. What if that product development was being done during the cost cutting years?

What should you do? While you always need to monitor costs, the emphasis must be on the top line and getting new customers. Consider giving your sales staff an extra incentive to attract new customers at acceptable pricing. Push them to work on existing customers and develop new products or services and give incentives to them for this activity also. Everyone, especially sales people, is motivated by incentives. Give your sales staff a targeted number of prospecting contacts to visit each week. All of the above approaches work, but the attraction of new customers will result in the best bottom line. Entrepreneurs must place priority on the top line, not the bottom.

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Article Tags: cash flow, coaching, consulting, cost savings, management, profits, sales, small businesses



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