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Being Competency Focused
Being well positioned in the marketplace means that you have developed a clear understanding of your competitive advantages - the skills, capacities and expertise that set you apart. Now, you must make sure you are doing it better than anyone else.
Contain Costs
Contrary to popular belief, cutting costs is a growth strategy. Don't be miserly, but be smart about it.
Consider: A 20% profit margin will net you $12,000 before tax on a sales increase of $60,000. But you can achieve the same increase in after-tax profit by cutting $1,000 per month from your current costs.
Here are some systematic ways to go about cost cutting:
- Benchmarking: Compare yourself to a similar company that is more profitable than yours. Examine key processes step-by-step: manufacturing, for example, or delivery. You will probably need to visit, with permission, so choose a company that's not in direct competition.
- Quality Circles: Involve staff. Do it on company time so they know it's important. Present a specific problem - reducing shipping costs, reducing waste, shortening production or invoice processing.
- Re-Engineering: Take a single process - invoice processing, for instance, or aging accounts receivable - and divide it into the steps involved. Try to find ways to eliminate or combine steps: redesigning forms, re-arranging work space or cross-training, for example.
Identify Best Items
To identify your best products or services, figure out:
- which items sell the most
- which items cost the most to support.
Decide where they fit in your company offerings. They could be:
- Cash cows: Sell a lot and cost little to support. These are mature products with economies of scale. They sell effortlessly.
- Stars: Bring in good money but cost a lot to support. Usually high-competition items under price pressure and needing heavy promotion.
- Question marks: Don't sell much yet because they are new, and eat a lot of cash because they're expensive, difficult to deliver or need a big sales job. You think they'll grow, but that's the question mark.
- Dogs: Don't earn much but don't cost much either. Cash cows past their prime or sleepers that never caught on.
Now decide whether they are worth your continued investment.
- Is the product or service meeting expectations? Progressing toward them? Have you at least covered your startup costs?
- Is the product earning its spot? Is it worth the square footage or service performance time or delivery time?
- Does the product build traffic? Loss-leaders may be necessary, but get rid of them quickly if sales drop off.
- Are there better ways to spend your time and money? Other products or services that could be more profitable? Liquidate the losers and use the cash to renovate or advertise?
Improve Inventory Turnover
Keeping stock on the shelves is expensive, adding to the original cost of buying it. And you're not making any profit on it until it sells, either.
Compare inventory turnover rates to industry standards. Not all products move as quickly as others so keep track of each product category. This determines the number of each you should keep in stock.
The more closely your ordering pattern resembles your sales pattern, the better your inventory turnover will get.
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