• Christopher Wallace

Why Don't More Companies Look to Cut Selling Costs at Budget Time?


Budget Time Fun

The purpose of this article is to create a general awareness that companies should annually evaluate their selling expenses, including advertising if that's a big expense.

Most businesses plan to produce a product or service at a lower cost in order to boost profit beyond the rate of sales growth. These same businesses may also look to reduce company overhead in the non-selling channels. Both are proven strategies, but you can only cut so much without consequence, right?

Lower Sales Costs Might Be the Solution to Improved Profitability

Cutting Channel Sales Costs Might Be an Answer to improved profitability I've worked with companies that managed to improve and reduce their selling costs in one year by as much as 20%; the result being more than $9 million in profit improvement for the year for one business in particular. At other businesses, we've managed to reduce selling costs as a percentage of sales by double digits over several years as part of a 3 or 5 year plan. Has your business ever taken a strategic approach to cutting selling costs? If not, that's good news! It's still waiting to happen, and you can be the beneficiary.

Big Profit Opportunity

There is a tremendous opportunity in many companies to take a strategic approach to lower selling costs. You start with the P&L Statement or a channel expense statement. The channel P&L statement example below displays this year's current budget, plus a scenario that uses two different approaches to achieve profit growth. (Try to enlarge this if you can).


1. Next Year - Cut - Sell the same amount next year but at a lower cost - this strategy is focused on reducing selling costs. This Next Year Cut indicates a reduction in salary, with an increase in non-exempt labor. Supplies, advertising, auto reimbursement, and misc were taken down. This example is a very conservative cost cutting initiative. Savings are typically found easily. For an explanation, I'll send you an e-mail upon your request. 2. Next Year - ^ - Sell more product or service but hold selling costs - this strategy is also focused on efficiency, but places emphasis on sales growth as well as profit growth. This is my favorite strategy, but sometimes the first step needs to be taken. There is actually cost cutting involved, but the savings goes into investment for growth. Again, if you want an explanation of how to cut channel costs, e-mail me a request, and I'll respond. Now, look at each line item for opportunity. My first example, "Next Year - Cut" shows profit improvement of $222,000 in the next year from strategic reductions in Labor, Advertising, and Selling Costs at Budget Time? Not bad, right? This is typically easiliy accomplished with the right focus.

The second example shows sales growth of $303,000, plus profit improvement of $217,000. How is this accomplished? Bad investments were eliminated and replaced with more productive campaigns. Sales people become more produtive through greater accountability and direction. Ad campaigns are more effective. Underperformers are released or retrained. There are many more solutions. But, you get the point. This is very doable!

Summary

These are real opportunities in most companies. Do you work at a $100 million multi-channel organization. Expect several million dollars in profit improvement over a few years. A couple million dollars in the first year could be possible. Smaller businesses can expect similar results as a percentage of sales.

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