Profitability is the ultimate goal of every company and it’s the reason we’re doing business in the first place. Products and services need to move and money needs to be made so at the end of the day, your family can have what it needs to survive and thrive. But when times get tough, you may need to cut costs in order to keep profits flowing. Sometimes this means making very tough decisions. Everyone will have to decide what it means to cut costs, but there are some cost cutting no-nos to keep in mind when these difficult choices have to be made.
First, one of the hardest to recover from cost cutting decisions you can make is to cut wages. Even if it is only a short-term decision, your employees will be unhappy with your decision to cut their pay. As it directly impacts their lives negatively which eventually shows up in the workplace in many difficult to manage ways. You may be forcing your employees to cut back on things that make them happy in their personal life or worse, things they need. There is always a natural attrition that follows cutbacks to wages as those who are absolutely dependent on their full salary are forced to seek well paying work elsewhere. In this case it’s realistic to expect that you might actually lose some of your best people. Nothing tells employees that the company is having major problems like wage cuts and when this gets out into the broader community speculation and gossip do the rest of the damage. Cutting wages hurts profitability in the long run because when you do recover you have to hire and train new people, which is a very expensive process.
Next, it is unwise to sacrifice on quality. If you suddenly start offering your products made using cheaper materials or lesser services, your customers will notice. If the quality difference is very noticeable they may even be turned off your business completely. While this may seem harsh, it is a busy world and people don’t like to be surprised or under whelmed. They are looking for reliability and constancy and if they don’t find it with your business, they will look elsewhere for it. When you’ve set the standard for your services or products you need to maintain that level of quality at all cost and if you can’t then you must find ways to at least increase value.
Nothing shrieks failing business louder than grubby and run down. Few people want to walk into let alone eat in a restaurant that has filthy windows, sticky floors or dirty furniture. Making sure your people have a clean place to work, drive cleaned vehicles or wear smart clean uniforms is important for your customers as much as it is for the esteem of your employees. It’s important to keep in mind here the difference between old and unclean. You don’t have to replace old with new to maintain cleanliness. Walk into a museum and you see old relics and objects that have been carefully cleaned and preserved for posterity, the environment is clean.
When things aren’t as bright as you’d hope, it’s vital that you remain connected with your market. Sending communications to your existing customers reassures they that you’re available when ever they’re ready to buy from you again and more importantly reminds them or inspires them to buy from you right away. Keeping your prospects active through marketing campaigns means that you’ve always got potential customers ready to be converted. Whilst running promotions where people in your target market are mostly found keeps your brand front of mind. Invisibility is death in any industry. Visibility through marketing is what makes your existence real to your customers and prospects. Cutting back on your marketing activities is only of any value if what you’re cutting are the campaigns that aren’t working. Otherwise you need to be putting as many messages in front of people who are like your customers as you can.
Read the biography of any successful individual and they’ll tell you that it was the mentor, teacher, coach, book or course they studied that gave them the edge over their rivals. It’s the same for us all, education that extra bit of knowledge or skill that we have over the next person that makes us the better, different, expert. Investing in education for yourself, your employees and teams always increases the value of your organization. Through in-house expertise, the added value given to customers, the innovation incorporated into your offerings, the operational efficiencies your team creates and hundreds of other side effects that learning adds. When you cut education spending your in-house innovation and creativity declines, communication and interactions inside your organization and with outside parties, such as customers, partners and suppliers are less harmonious which over time erodes the good will and good name of your brand.
Each of these areas when cut will impact on your business profitability. In the beginning your reporting will look fantastic for the shareholders or owners of your business, however after a relatively short space of time you’ll see a steady virtually unstoppable decline that will require major injections of capital to reverse.
Investigate ways to maintain each of these areas in your business during hard times so that when the good times come you have everything you need in place to out manoeuvre your competitors and have great profitability.