Often business owners are directed to spend heavily on advertising and marketing programs, when looking at her companies cost structure would provide more benefit – at least initially. It will take considerable success in top line growth to match even a 5-10% improvement in variable costs/cost of goods sold.
Some areas to focus on include:
- Misaligned pricing to her targeted margins
- Constant or excessive discounting
- Supplier price increases
- Warranty and returns
- Scrap
- Excess inventory
By focusing on these levers, a 10% improvement can increase profitability by as much as 35 to 40% improvement in revenue, depending on the margins of the business. And in the current economic environment this leads to much needed cash.
In the area of pricing and discounting the business owner can create bundles of goods, innovate her business and benchmark industry standards. As suppliers increase prices, and they do, the business owner can get competitive quotes, set up group purchasing agreements and negotiate longer terms. And for warranty/return issues and scrap, a lean program can identify and eliminate unnecessary waste in her business.
When the business owner has a clear roadmap, she should assign specific owners to key initiatives, establish improvement targets and consistently review to establish accountability. By consistently delivering on plan, she will quickly see improvement in both operating margins and cash balances. And that additional cash can then be used to invest in marketing programs to drive leads and conversions of new customers.
While we provide programs that will triple your leads and double your conversions, focusing initially on the profitability setting right in front of you is often the best option.
