This is the fifth of a series of five steps by which business owners can increase their gross revenue and their net profitability. Visit http://strategicvisionbusiness.com/blog to read the rest of the articles in this series.
The first four steps in this series of articles have focused on increasing gross revenue. And while that is obviously an important goal, it is only half of the equation. Too many businesses focus on growing their revenue, without paying attention to their costs. And at the end of the day, it net profit, not gross revenue, that matters to a business owner. It’s not about how much money comes in to your business every year… what is important is how much money you keep in your business each year.
So how can you be sure that you are keeping your costs under control? While the specifics depend on the nature of your business, there are steps that any business can take to keep their costs in line and maintain efficient operations.
Arguably the most effective way to manage your costs is to systemize every element of your business. I’m not talking just about marketing here—I mean everything and everyone. You are paying your shipping clerk for his time, so make sure that he is spending it efficiently. Don’t leave it up to him to determine how he spends his time… instead, take the time to develop an efficient procedure for his position. Document it, and hold your employee accountable to the systems you create. This approach works for every position in your organization, from your secretary to your bookkeeper to your sales team. If you leave it up to your employees to determine how they spend their time, you are ceding control of your costs to them. You don’t have to micro-manage, but you do need to clearly define your expectations and the procedure each employee is expected to follow.
There’s one important note I want you to consider: making your business more cost-effective does NOT mean blindly cutting costs. Many of the costs you incur are actually great investments that make you more profitable as a business. (Example: effective employees, production equipment, etc.) Your focus should be on looking for wasted costs and finding ways to make your operation more efficient.
While four of the five steps for business growth in this series focused on increased revenue, do not neglect the importance of cost control. Increased revenue is great, but if your costs increase by the same amount, you’re not making any more money at the end of the day. How can you make your operation more lean and cost-effective?