The crisis that has afflicted this country’s economy has affected the profits of many companies. In such an uncertain scenario, good managers need to reevaluate their businesses and seek to survive this time of turbulence while maintaining their company’s health.
Increasing profits by reducing costs is essential to this process. However, it needs to be done in a planned and organized fashion.
Reducing costs doesn’t simply mean cutting spending in a haphazard manner. You need to understand the nature of each cost and its relationship to your company’s sales and profits.
Thus, we’ve written this post to offer tips on how to cut costs in an intelligent manner and also increase your business’s profits. Read on!
Identify all your costs and expenses for at least the last six months. After careful analysis, establish reduction goals for each item. This is known as cost forecasting, and should be done monthly.
In addition, you should keep track of costs regularly, comparing your forecast with what was effectively spent month by month, verifying if your goal is being achieved. If it isn’t, you should analyze what could be impeding the realization of your goals.
Be careful with false impressions
A large sales volume doesn’t necessarily mean large profits. Often increased sales give an image of prosperity, while behind the scenes expenses are consuming all the profits.
To get real results, spending has to be used in an efficient manner. This can be achieved by increasing your average ticket (the customer’s average purchase), optimizing the ROI (return on investment) of your campaigns, and improving your procedures and internal methods.
Analyze your costs in percentage terms
In analyzing your costs, use percentages instead of quantities of money. It’s good to do this because if your sales increase but a cost remains constant, this cost now represents a smaller percentage of your sales volume. And when you diminish your cost percentage, you’re increasing your profits.
On the other hand, if your sales volume remains constant, you can increase profits by reducing the cost of a specific item. This way you can strive for two goals: diminishing specific expenses and increasing productivity at the same time.
Use a reliable system
Before you determine whether a cut in spending will increase your company’s profits, you need reliable information about your operations. This data can be obtained from a system which offers strategic management of your company’s costs, profitability and performance and is integrated with your company’s existing systems.
With this solution, you’ll have access to basic and complex graphic analyses, and the ability to execute advanced simulations for possible economic scenarios. This is important in preparing monthly reports, budgets and evaluations of your operations.