You Can’t Cut Your Way to Growth
When will people learn that in business revenue drives everything—Everything—If you put every worker in America on some type of commission plan, we would never have another recession. If you fix the top line, the bottom line takes care of itself–eventually
The problem is revenue requires training a sales force..investing money…waiting for the crop to grow. That takes a lot of patience, time and money. In with our “next qtr” mentality, that does not help the bottom line now. The best way to affect the bottom line today? Cut expenses. Makes sense right?—Sure it does if you only get rid of the bloated fat, but we are way beyond that in this economy.
I think a few examples and analogies are needed:
Company A $100,000: revenue
$50,000: profit How to get to $75,000 in profit quick? Cut expenses by another $25,000……Done—magic pill—Everyone is happy– (except those laid off, and the people who have to do twice the work) But here is the real problem—You can’t cut your way to growth. What will now happen is the sales reps will discount and a new norm will be set—A dropping tide lowers all ships. It is like when you feel your pants getting a bit tight because you put on a few pounds…You know that feeling..Bloated, binding—generally uncomfortable. Then you go out and buy a new pair of pants a bit larger in the waistline—A new norm has been set—You no longer feel fat, so now a 40 inch waist is the benchmark—This happens every few years until you wonder why you are so fat.
Same with cutting expenses and the discounts that usually happen at the same time as a company panics and tries to hold onto market share..After a while they look around and there is no staff, and pricing is half of it once was…”Didn’t we used to charge twice as much”?—yea….back in the “good old days” –Once a new norm has been set—It’s a slippery slope…
…Now how do we find a long term solution and end up in a much better place with a little patience?….Increase expenses by $25,000 with sales training and marketing….What? Increase expenses? That’s blasphemy! Stay with me. With the right program, $25,000 in marketing and sales done right should produce at least $50,000 in additional revenue. …So now we have this scenario
Company B $150,000: revenue
$75,000: profit …Same outcome. One takes a year to get to, one happens instantly.. But look what you are left with for Company B….You didn’t discount..You still have a full staff….And you made the same profit as the expense cutter. As an added bonus when the economy turns around Company B is going to leap light years ahead…And wait to Company A tries to get prices up again—Good luck!..
I understand that some times, hard decisions have to be made immediately..But face it….Most companies have already made the rounds on laying off the non-essential workers and expenses. The saddest thing in business is when a company cuts, cuts, and then cuts some more—And then—they go bankrupt anyway