3 Strategies to Energise your Bottom Line
There are three key strategies available to energise your bottom line, with then an infinite number of tactics which can be used to support them - customised to your business and its circumstance.
The three key strategies are;
• Revenue - increase
• Direct costs - control
• Operating costs - reduce
Each of these strategies has relevance for every business, and can be used either in isolation or combined depending on where the business is currently positioned. Before jumping onto any change program, naturally it is essential to understand where your business is presently at, what is working and what is not. Off the back of this understanding, you can then decide what strategy/ies are appropriate to improve your bottom line profitability.
Scattered approaches to improving a business can be exactly that, scattered. Without being clear on what you are trying to achieve and why, can see conflicting or pointless activities being undertaken. So plan twice and execute once.
The execution needs to be paced to take into account the available resources of the business (ie. there is only so much money and so many people to go around), be well communicated with the staff and then measured and reported. These points are relevant for all business sizes.
Consider each strategy in turn; examining what it would deliver, how it would shape the business and what resources it would draw. Timing is often an important factor, in that some strategies (or the underlying need), need to be delivered in a tight timeframe. An example of this may be the business that needs to return to sustainable profitability fast. Any of the three strategies may work, with simply more sales, better purchasing or the removal of excess cost – but depending on the characteristics of the business, one of these will generally stand out as being more appropriate. Naturally this is a very simplistic example and whilst time may be a critical item, no decision should be made based on time pressure alone.
With the strategy position decided, you are able to start considering what tactical actions can be employed to deliver strategic benefit. The numbers of tactical options are virtually endless - with the following list merely a sample of potential options;
Revenue - Increase
- increase your pricing and institute a regular pricing review program – are you charging enough for your product/service AND will the market pay more?
- cross sell to existing client orders – market complimentary products to your existing sales
- provide a packaged or bundled offering – a great way of moving some slower moving stock
- increase raw sales via marketing options – simply more of your current sales
- diversify product range – to service a greater portion of your clients’ needs
- introduce your existing clients to your full product/service range – many will be oblivious to what else you can offer, so this can be an easy place to quickly increase sales
Direct costs - control
- minimise stock loss from obsolescence, theft or damage – consider stock security, tracking, and handling processes
- review packaging costs – is there a more cost effective option?
- check inward deliveries carefully and only pay for what is received – many deliveries and invoices have errors – check them carefully
- examine your stock holding and accelerate stock turn – slow moving stock costs you, so accelerate the cycle
- understand your margin per item and remove loss making lines – critical that you understand which products are viable
- link staff activities to billable client hours – consider simply that you are paying for 38 hours per week, so you should be able see how this aligns to where you make money
Operating costs - reduce
- remove operational waste – can be ineffective meetings, poor processing patterns, slow processing etc – think LEAN and you will find a number of items to address
- improve cost controls and measurement programs – if it’s not measured, then it’s not monitored and it’s likely that a lot of expense is being “allowed” because it’s not been seen
- use the correct finance products in the correct manner – working capital facilities are too expensive to be used for long term debt
- review debtor collections activities to reduce collection period – faster invoicing, follow up calls the day an account is due, clear collection processes will all save money
- improve staff efficiency with clear processes and relevant kpi's – everyone should have distinct activity targets to achieve
- consider outsourcing non-core functions – if a specialist can complete the work in half the time but charge you 50% more per hour – you are still in front – not for all items, but worth considering
A couple of further tips:
- Not all tactics are appropriate for every business - so select options that match your business and its resources.
- No tactic should be implemented without appropriate measurement and performance assessment - everything has a cause and effect so it is important that changes are monitored to ensure that they provide a positive effect on the business.
With roughly three quarters of all businesses performing below par (in financial terms), there is plenty of upside reward for those who seek to drive improvement in this area. A well-reasoned strategy supported by customised tactics which are monitored/measured for effectiveness will deliver bottom line value for the business.
Now - stand back and assess your business and identify whether you are getting the value you seek – if not, then it’s time to critically assess which is the correct strategy path for you and.….. do something about it!