Which is better, to increase sales or reduce costs?
At a 5% profit, small losses are difficult to replace
To cover the loss of a : You need sales of:
.49 cent postage stamp $9.80
$1.00 theft $20.00
$5 lost tool $100.00
$20 uncollected receivable $400.00
$100 inventory shortage $2000.00
$1000 excessive labor cost $20,000.00
Typically you have more control over your costs than your sales. Do you spend
.95 cents to make a nickel, or do you see how a dollar cycles through your business?
What if you could recapture 2% - 4% of each dollar and put it to the bottom line? You
can't control what you have not measured. Once you have measured something, you are
in a better position to affect the outcome. More sales don't mean more profit, more
employees don't guarantee more profit. Costs tend to rise disproportionately with sales,
if there is a cash flow issue (really cash retention), then it only becomes more
exasperated as volume increases. The key is to address the root cause of the leakage,
rather than trade dollars and hope for the best. Resources in a business are finite, every
decision you make either increases or decreases the net worth of the business, nothing
is neutral. As the old carpenter's expression goes, "measure twice and cut once."
