Effective cost management is a hallmark of every well-run business. Money can too easily leak away on buying things you don’t need or through processes that could be more efficient. Cost reduction and production efficiency are good for the bottom line. But only if they are not taken too far or firms become too reliant on them.
Improved efficiency is certainly a direct route to profit growth – but is it sustainable? Sometimes cost reduction brings short-term benefits, with long-term negative impacts on other profit-boosting opportunities. Focus almost exclusively on improving efficiency and you’ll also experience the law of diminishing returns.
Sustainable profit growth strategies focus on six factors that drive profit growth. One of these is cost efficiency. The other five are also efficiency based, but focus instead on income and the enhanced impact it can have on profitability:
- Gaining more qualified enquiries
- Converting more enquiries into sales
- Increasing the average sale value
- Increasing the frequency of purchase
- Reducing customer defections and growing lifetime customer value
Why do these areas receive less attention? It possibly comes down to two factors.
First, they need to be supported by an integrated customer operations strategy. This must be firmly rooted in a deep understanding of how the people who consume your products or services behave and think. customer engagement must be a process, not simply an activity bolted on to the side of the core activities. How many businesses have this level of detail on income streams, just as they have with cost breakdowns. Or have documented a detailed picture of the different types of customers they serve and where they are losing opportunities to get more?
Second, the ‘other five’ profit growth factors demand expertise that often lies outside of the experience of internal management teams within smaller businesses. In most cases, the internal resources will, quite rightly, be your production experts, reflecting the nature of your business. However, customers need to be given as much importance as production, as the latter is irrelevant without the former and they are getting harder to win and keep as competition in mature markets increases.
Access Performance Solutions help companies access sustainable profit growth through customer operations programmes targeted at the other five key drivers of business performance. It can be quick, sustainable and grow profits by 30% or more without increasing costs. If you want to know more about how this can be done, get in touch with us today on 01823 429339.
