Every business owner knows the game they’re playing with their business. It’s called, “keep the books in the black.” During this most recent recession, it was often modified to something along the lines of “keep the books as little in the red as possible.” The game requires a massively complex equation that includes balancing things like employee productivity and corresponding wages, market share expansion at the cost of resources and whether or not to update equipment or locations. While the great god of increased revenue is often supreme in the pantheon of economics deities, here’s why you should be kneeling instead at the altar of low bottom lines.
Chasing higher incomes is to maintaining a low cost company what gambling is to farming. Sure, the yields can strike like an awesome thunderclap and pay out as long as the clients exist, but as soon as they disappear, so too will the companies that chase them. Should a new, huge contract come through, you can hire temps and add space as necessary. By keeping them on contract through the early phases of the relationship with the client, you will be able to determine the validity of the temps’ continued employment based on both their own performance and the potential for a continued relationship with the client.
In tough economic times, as those we’ve recently seen, companies will always seek to cut away the dead wood. This is an inevitable evil that will damage employee morale, increase workloads and thereby reduce productivity whether it happens from wage cuts, freezes or terminations. It’s much better to be in a position of needing to add staff to a pre-existing core than needing to trim the fat. Powerful bear markets will cause havoc for anyone who isn’t in the foreclosure or seizure businesses, but the losses can be significantly mitigated by more mindful and careful expansion.
The company with the lowest bottom line will always have the edge because they will be able to earn more at comparable rates or undercut to expand market share based on whim alone. This means that having a lower cost structure can directly lead to a higher profit margin than competitors’ with the opposite strategy. In essence, the best method to making more money is being able to spend less money. This can sound pretty underwhelming as it is familiar advice handed down from dust bowl times. But it’s the survivors of those tough times that have been able to craft these phrases that are so ubiquitous we find them blasé — and notably, most companies still fail to heed the sage warnings.
This policy isn’t about doing something once or for a short while as an emergency strategy. It’s about instituting a policy that will last the duration of the build process. Your strategy must be maintained through every single decision, whether it’s hiring, benefits, expansion, international opportunities or even something as obvious as supply chain.
There are a number of guides that can assist in getting started in the right direction. Let’s face it: Much of inducing company savings is about setting a good example and encouraging others to follow suit. Maybe instead of taking the client out to a nice lunch, invite them to a company potluck or even brown bag it. Explain all the while that these are precisely the efficient, cost-effective business practices you intend to maintain. Instead of having a birthday party every single day of the week, have them monthly or quarterly. Make these cost-cutting changes in all areas of your business.
A great way to keep incidental costs low in a modern company is in the structuring of employee pay and benefits. As always, when altering salary and benefits, make sure to contact your professionals in charge of the system. However, one simple way to structure pay efficiently is to use the bonus system heavily. Through hard times, bonuses can be reduced or eliminated without having to take away jobs or freeze COLAs. They will be a dependable means of maintaining promised salaries for employees while giving you the flexibility to slash costs in the event of another bear market. However, if you use this system, it’s best to communicate it to employees so they can plan around it in their own financial lives.
Personal sacrifices must be made. Ultimately, leaders can make significant changes, but they must inspire their employees to follow along. Real savings can be had at all levels of an organization; inspire your workers to cut costs and reap the rewards in the workplace as well as their home life, and you may start noticing a lean and mean profit-making machine.Back to blog list