Copyright 2006 Alastair Dryburgh
1. STOP DOING SOMETHING
Maybe it's a product or service line that isn't paying its way: it is hard to sell, generates lots of customer complaints of demands for after-sales service, or uses up more than its fair share of resources.
Maybe it's a customer. The one who negotiates special extended payment terms and then pays even later ? The one who keeps wanting to change schedules at the last minute ? The one all your staff dread hearing from ?
Maybe it's a marketing activity that doesn't produce the results. It doesn't address the right market any more, your message is drowned out by competitors who spend more, nobody is interested any more.
Whatever it is, get rid of it ! Don't worry about if it is generating some contribution; cutting it out will release a quantity of time and energy which will generate many times more.
2. INVEST AGGRESSIVELY
This is the other side of the coin to point 1 above. When you have cut out the underperforming activities, what do you do with the money, time and energy released ? Put it into the winners. Some products, some customers, some activities produce results out of all proportion to the resources they consume. Give them more. The definition of an entrepreneur in classical economic theory is "someone who moves resources from a low productivity use to a high productivity use". Be an entrepreneur !
3. TURN A COST CENTRE INTO A PROFIT CENTRE
Take a look at your costs. Look specifically at those you classify as "overhead". Most times you think of these, you probably are thinking about how to reduce them. For once, ask the opposite question: what could I do that would make me want to spend more in this area ? Take some examples:
Customer service: this can be more than dealing with queries and handling admin. These people are talking to real customers about their problems. They could be selling !
Finance: these folk need to produce the numbers, collect the money from the customers, pay the suppliers on time, do the tax returns etc etc etc but what could they be doing to increase the value of the business ? Get them working out where you really make money and where you don't. Get them analysing the effectiveness of your marketing efforts, activity by activity. This can be hard work, but the results can be worth it.
4. INTRODUCE A NEW KEY PERFORMANCE INDICATOR
Somewhere, something is happening in your business that you need to know about, but you are not reporting it. Could it be:
* customer churn: what percentage of last year's customers are not customers this year ?
* changes in average customer value: what if your revenues are stable but the average spend per customer is falling, so you have to keep recruiting more customers to stay where you are ?
* proportion of customers who are "ideal" customers. If you don't have this already, write down the profile of an ideal customer in a few sentences. Then look to see what proportion of your customer base match the profile. Is this going up or down ?
Find just one new measure, and start measuring. Don't just measure, publicise. Tell everyone know how you collectively are performing against the new measure, and make sure everyone knows how what they are doing affects the measure overall.
5. DO AN 80/20 ANALYSIS
You know that 80% of your profit comes from 20% of products/customers/salespeople/territories/contracts/younameit.
You don't know which 20%
So find out ! This on its own can transform your business.
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Alastair Dryburgh is Chief Executive of Akenhurst Consultants, a consultancy which works with companies who want to improve the bottom line but are frustrated with the limitations of painful cost reduction.
http://www.akenhurst.com
