Jul 12, 2018 Cost Cutting and Profitability Improvement
A fair number of clients ask me to help them cut costs as a means to improve profitability. I am happy to help them. But my help comes with a warning. In nine years as a small business consultant, I have rarely found cost cutting to be an effective strategy to increase profits. Why? I believe it to be that most company owners are well aware of the money coming in and the money going out. They strive to keep costs low and are pretty effective at it.
The real driver of profitability is providing a product or service that is differentiated in the eyes of the customer and provides more value than its price and the product/price of competitors. So efficiency is very important in being able to offer products at high value relative to cost. At the price customers are willing to pay you, you must be able to make a profit.
This is achieved by having a competent and engaged workforce, streamlined operations workflows, good technology to understand what is going on, maintaining quality, sourcing inputs at the lowest cost you can get the products and the quality you need, etc. A successful business requires all this along with an effective business strategy, a good marketing strategy and a good marketing plan – all well executed.
So don’t give up on watching your costs, but also spend time on the other key things you need to be doing to have a successful business.
Apollo Consulting Group, Newport, RI
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