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Save money, make money
posted on: 27/8/2010 09:07:06
Nick Jones hi resRESIZED
Nick Jones says creative cost-cutting will increase profits.

As an accountant, I understand the need for businesses to review cost. It is, along with increased sales, one of the best ways to improve cash flow and profitability.

Decreased expenditure, when strategically implemented, can have a substantial effect on a business.

But how do you make cuts? There are the obvious methods: slashing headcount or hammering down the cost from suppliers. However, these all come with their challenges. Staff will need to be re-hired when business picks up; suppliers tend to get upset when their prices are forced to non-commercial levels, and, as we all know, the cheapest option usually turns out to be cheap for a reason.

So, what else can you do? Be flexible and think differently. Consider what makes you different from your competitors, and what else you could be doing to save costs not just for your own business but for your customers.

If you could save 30 per cent on the cost of a particular service, you could pour all that extra money into your own pocket, or you could reap a couple of per cent of the benefit for yourself while reducing the cost to customers by 25 per cent or more.  If you could turn round to customers and potential clients tomorrow and say ‘We just became 20 per cent cheaper with no impact on quality or service’, how do you think they would react?

Let me put the theory in context. As well as our conference bag range, we also make and supply lanyards. Like most of our competitors, ours are manufactured in the Far East. Lanyards are small items; even orders ranging into the tens of thousands don’t take up more than a handful of boxes.

They are easy to transport; but only by airfreight. Every day there are thousands of lanyards being flown around the world at substantial cost to both clients and the environment. Why? Because shipping by sea requires containers, and one 40ft container would probably contain around one million lanyards!

This is a challenge faced by all lanyard suppliers, but we spotted an opportunity for some clever thinking.  Why not simply add the boxes of lanyards to the containers of bags we were already shipping? All of a sudden cost to the environment, to us and to the customer is reduced.

If you could turn round to customers tomorrow and say 'We just became 20 per cent cheaper with no impact on quality or service', how do you think they would react?

The real issue here has nothing to do with lanyards or show bags but ‘intelligent sourcing’, something we should all consider as we look to improve our businesses. Far too many businesses look for the quick ways to save money when longer-term strategies benefit both them and their clients.

We believe this new method of shipping will save our clients up to 30 per cent, and crucially this has been done without detriment to our own finances (actually it has improved them as the lower cost wins more business without sacrificing quality).

But lanyards are just one cost-line in an event budget. Think about what you could achieve across a major exhibition or conference if everyone involved considered new ways to reduce their cost without affecting their own core business.

Of course, there is no getting away from the cynical and the greedy: those businesses that spot cost savings options without passing them on to their client. Such behaviour will certainly have an immediate impact on their income, but is unlikely to win new business. Personally, I would prefer to have twice the customers at a 30 per cent lower turnover, if I know my profit margins remain the same.

Remember the old accounting adage, turnover is vanity, profit is sanity. Oh and, of course, Cash is King!

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