What if the incremental costs to achieve this $10 grand in extra profit (through cost-savings) is also $2,500, the selling price of one unit. Would you spend an extra $2,500 to earn at least $10,000 in pure bottom-line profit? Sure you would!

How easy do you think it will be to increase sales or reduce costs? Really it’s a no-braine

What should you be concentrating on, generating more sales, or reducing operating costs? Actually, the ideal is to do both simultaneously. The only way to make profits, is to increase sales and reduce expenses. Naturally, when it comes to “marketing,” most people immediately think of generating sales; and that’s good. But there are other aspects to marketing that can be managed better and result in the same goal—profits.

When it comes to cost savings, there are many ways to cut costs: pricing, purchasing, shipping, long distance/couriers, reduction in time spent on mundane activities, and many others. Let’s say you were able to reduce your operating costs by 10%. Additionally, let’s assume this amounted to $10,000. Where does this ten grand go? It flows straight to the bottom line: ‘net profits before tax’.

[You can even find ways to reduce your taxes!] Now let’s take a look at the other side of the coin: generating more sales. Assume that your profit on each additional dollar of sale is also 10%. For every extra $100 thousand in sales (on the top line), you generate $10,000 on the bottom line. If your average sale is $2,500, how many extra units do you have to sell to earn that extra $10,000? You have to sell an extra 40 units at $2,500 each, in order to equal the same savings you earn by reducing your existing costs by 10%. What if the incremental costs to achieve this $10 grand in extra profit (through cost-savings) is also $2,500, the selling price of one unit. Would you spend an extra $2,500 to earn at least $10,000 in pure bottom-line profit? Sure you would!

How easy do you think it will be to increase sales or reduce costs? Really it’s a no-brainer

spects to marketing that can be managed better and result in the same goal—profits.

When it comes to cost savings, there are many ways to cut costs: pricing, purchasing, shipping, long distance/couriers, reduction in time spent on mundane activities, and many others. Let’s say you were able to reduce your operating costs by 10%. Additionally, let’s assume this amounted to $10,000. Where does this ten grand go? It flows straight to the bottom line: ‘net profits before tax’.

[You can even find ways to reduce your taxes!] Now let’s take a look at the other side of the coin: generating more sales. Assume that your profit on each additional dollar of sale is also 10%. For every extra $100 thousand in sales (on the top line), you generate $10,000 on the bottom line. If your average sale is $2,500, how many extra units do you have to sell to earn that extra $10,000? You have to sell an extra 40 units at $2,500 each, in order to equal the same savings you earn by reducing your existing costs by 10%. What if the incremental costs to achieve this $10 grand in extra profit (through cost-savings) is also $2,500, the selling price of one unit. Would you spend an extra $2,500 to earn at least $10,000 in pure bottom-line profit? Sure you would!

How easy do you think it will be to increase sales or reduce costs? Really it’s a no-braine

nally, let’s assume this amounted to $10,000. Where does this ten grand go? It flows straight to the bottom line: ‘net profits before tax’.

[You can even find ways to reduce your taxes!] Now let’s take a look at the other side of the coin: generating more sales. Assume that your profit on each additional dollar of sale is also 10%. For every extra $100 thousand in sales (on the top line), you generate $10,000 on the bottom line. If your average sale is $2,500, how many extra units do you have to sell to earn that extra $10,000? You have to sell an extra 40 units at $2,500 each, in order to equal the same savings you earn by reducing your existing costs by 10%. What if the incremental costs to achieve this $10 grand in extra profit (through cost-savings) is also $2,500, the selling price of one unit. Would you spend an extra $2,500 to earn at least $10,000 in pure bottom-line profit? Sure you would!

How easy do you think it will be to increase sales or reduce costs? Really it’s a no-braine

every extra $100 thousand in sales (on the top line), you generate $10,000 on the bottom line. If your average sale is $2,500, how many extra units do you have to sell to earn that extra $10,000? You have to sell an extra 40 units at $2,500 each, in order to equal the same savings you earn by reducing your existing costs by 10%. What if the incremental costs to achieve this $10 grand in extra profit (through cost-savings) is also $2,500, the selling price of one unit. Would you spend an extra $2,500 to earn at least $10,000 in pure bottom-line profit? Sure you would!

How easy do you think it will be to increase sales or reduce costs? Really it’s a no-braine

What if the incremental costs to achieve this $10 grand in extra profit (through cost-savings) is also $2,500, the selling price of one unit. Would you spend an extra $2,500 to earn at least $10,000 in pure bottom-line profit? Sure you would!

How easy do you think it will be to increase sales or reduce costs? Really it’s a no-brainer. Generating that extra 40 units is not going to be a piece of cake. Marketing, advertising, selling and servicing the customer are time-consuming, difficult tasks. If they weren’t, we’d all be rich. But going through your existing operating system and seeing where you can trim the fat –or use new technology, for example — takes less effort, time and related cost ($2,500 spent to yield a $10,000 extra profit).

What would you do?

©Copyright, Roy MacNaughton, 2007