Recession Strategies: Maximize Your Profits - With Minimal Pain

Partner's Perspective

by Dale A. Ruther, CPA, CIT, CDS

Maximizing profits should be a primary goal of every business, but it takes on added urgency during challenging economic times like we’re facing today.

Even in the best of times, it’s hard to “sell” your way to higher profits. Instead, growing profits is usually a matter of doing one (or both) of two things: reducing costs and/or growing revenue.

Cost Reduction

For many companies, the best way to reduce costs is to increase operational efficiency. In other words, look for ways to do more with less. Start by re-examining how your people, processes and technology come together in order to manufacture and/or deliver products and services to your customers. Here are a few ideas to consider:

  • Align procedures with priorities. Make sure that all production and operational procedures are in proper alignment with your company’s strategic priorities. If a task or procedure isn’t promoting a key strategic initiative, then it should either be eliminated or changed. “We’ve always done it that way” are six of the most dangerous words in business.
  • Streamline and automate processes and procedures. Re-engineering, a popular business buzzword back in the ‘90s, is making a comeback during the current recession as companies look for ways to revamp processes and procedures in order to maximize efficiency. Remove barriers and redesign processes that are hindering a smooth and efficient workflow throughout your operations.


Especially look for opportunities to automate. For example, the Internet has enabled the automation of many processes that used to be done manually, such as order-taking, tracking packages, payment and even customer service (online FAQs can answer many customer questions without human intervention).

  • Focus on error reduction. The cost of errors and rework can take a big bite out of cash and, hence, profits. Start by counting, categorizing and dollarizing errors and mistakes. For example, how many errors are occurring in your manufacturing, delivery and service components? What specific types of errors are occurring? How much are they costing you? This exercise will help you focus attention on improvements that will have the biggest impact on your bottom line.
  • Boost employee productivity. Do your employees have the tools they need to do their jobs in the most efficient manner possible, and are they working with the latest technology? Are the right people doing the right jobs? Employees should receive regular training to make sure their skills remain up to par, as well as incentives (financial or otherwise) to encourage productivity and efficiency.
  • Measure performance. Key performance indicators (KPIs) are quantifiable measurements that reflect your company’s most critical success factors, such as profitability, cash flow, leverage and liquidity. Every company’s KPIs will be different, but the most common financial KPIs include profit margin, debt to equity, return on equity, accounts receivable and accounts payable days, and inventory turnover. (See the summer 2008 issue of Foresight for more details on KPIs.)
  • Be selective in your client relationships. This might sound counterintuitive during an economic slowdown, but there are probably some clients you’d be better off saying “goodbye” to. The classic 80-20 rule states that the majority of your profits come from a minority of your customers.


Revenue Enhancement

The flip side of the profitability equation is revenue, or income. Consider these ideas for growing your revenue even in the midst of the economic slowdown.

  • Segment your customers and prospects. Your customers and prospects aren’t all the same. Find out in what key ways they are different so that you can more tightly target your product offerings and marketing efforts. You can segment by differentiators like their industry or market, as well as by the appropriate sales channel. This exercise should help you zero in on highest and lowest value customers and prospects and all those in between.
  • Devise a contact strategy. Once you’ve segmented your customers and prospects, create a plan for how you will “touch” them throughout the year. This will range from high-cost touches like face-to-face sales calls and trade shows to lower-cost options like telesales calls, direct mail and Internet/e-mail.
  • Segment your product or service portfolio. Similar to segmenting your customers, do the same with your products and services. The goal is to identify your stars, cash cows, question marks and dogs so you’ll know which ones to invest the bulk of your sales and marketing resources in (see sample chart below).
  • Start an e-marketing campaign. E-mail can be an effective communication tool if used wisely. It tends to be more effective for building long-term relations with customers and prospects than making quick sales, however. Be wary of offers that promise to sell you thousands of e-mail addresses for pennies apiece — it’s usually best to build your own e-mail list from your customers, prospects, business associates, friends and relatives, referral sources, etc.
  • Leverage public relations and publicity. There are many low- and no-cost public relations strategies you can implement to generate publicity for your business and kick-start new sales. Writing and distributing press releases and white papers, publishing a newsletter (print and/or electronic), contributing to a blog, and writing articles for publication in industry trade journals and Web sites are a few ways to crank up your company’s public relations machine.
  • Raise your prices. Don’t overlook the obvious. Of course, in today’s economy, your customers may not accept price increases. The best strategy is to offer some kind of added value that costs you little or nothing along with the higher price. Also, if you work with customers on long-term contracts, be sure the contracts include automatic annual cost-of-living adjustments based on annual changes in the consumer price index.


For more information, contact Dale Ruther, partner, at 330.762.9785 or by email.

 

SidebarClamp Down on Credit
Do you allow customers to pay on credit terms? This is a common, and even expected, practice in many industries.

But that doesn’t mean you shouldn’t do your due diligence before extending payment terms. Require a credit application and conduct a thorough credit check before offering terms to any customer, and don’t offer terms to any with questionable credit histories or payment practices. The cost of the credit check will likely be more than offset by the money and aggravation you’ll save in not dealing with credit risks down the road.

Meanwhile, if current customers are falling behind in their payments, don’t hesitate to revoke their credit privileges. Depending on the extent of their tardiness and the outstanding amount due, you may need to get more aggressive with your collection efforts, including referring the client to a collection agency.