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Are you tolerating a business that’s just scraping by?
We’ve been talking about this for a few weeks now, and today I want to dive into the second lever that can help you improve your profitability. As a reminder, the first lever was pricing, and we discussed that in this video here.
The second thing I want to talk about is how you can improve, and by improve, I mean to decrease the cost of goods or the cost of the services that your delivering. And I have three main areas where you can improve your cost of goods or cost of sales.
The first one is efficiency improvements. Are there ways to increase your throughput if you’re a manufacturer or a company that builds something? Maybe new equipment or new training. If you are a service company, things like training, standard operating procedures, and for both service and product companies looking at lean techniques. How to move things through your business quicker will help you improve efficiency and help decrease your cost of goods or cost of service.
The second thing is reducing waste. Now, manufacturers are very, very big on this, they pay a lot of attention to what gets wasted, but service companies do not, and we do waste a lot of time with things. How can you improve waste? Things like having a way for customers to set up their appointments without you getting involved. The calendly link or another calendar saves you or your administrative folks a ton of time. And I’m sure there are other ways in your business to reduce the time you’re wasting.
Finally, improving vendor relationships. This is very important for product companies, but it’s also relevant for service companies. Are there ways that you can improve your relationships with your vendors and receive discounted rates in exchange? For things like long-term contracts, vendors will often give a discounted rate for a long-term contract. Things like reducing the services you don’t need, or maybe sometimes bundling services, will allow you to improve the relationships with your vendors and the cost. Next week we will talk about improving overhead—the third of the three big levers you have to improve your profitability. If you want to look at your business as a whole and improve its financial performance in a relatively short 12-week period, please check out my Fiscal Fitness Boot Camp and I’ll be back next week with a brand new Fiscal Fitness Tip of the Week.