Increasing profits through cost reduction must be based on the concept of an organized, planned program. Unless adequate records are maintained through a proper accounting system, there can be no basis for ascertaining and analyzing costs. Cost reduction is not simply attempting to slash any and all expenses unmethodically. The owner-manager must understand the nature of expenses and how expenses inter-relate with sales, inventories, cost of goods sold, gross profits, and net profits. Cost reduction does not mean only the reduction of specific expenses. You can achieve greater profits through more efficient use of the expense dollar. Some of the ways you do this are by increasing the average sale per customer, by effectively using display space and thereby increasing sales volume per square foot, by getting a larger return for your advertising and sales promotion dollar, and by improving your internal methods and procedures. Profit is in danger when good merchandising and cost control do not go hand in hand. A big sales volume does not necessarily mean a big profit.
Paying The Right Price
Our goal should be to pay the right price for prosperity. Determining that price for our operation goes beyond knowing what our expenses are. Reducing expenses to increase profit requires our company to obtain the most efficient use of the expense dollar. An understanding of the worth of each expense item comes from experience and an analysis of records. Adequate records tell what has happened. Their analysis provide facts which can help Artemis Company set realistic goals, it is paying the right price for it store’s prosperity.
Analyze Company Expenses
Sometimes we cannot cut an increase item. But we can get more from it and thus increase our profits. In analyzing our expenses, we should use percentages rather than actual dollar amounts. For example, if we increase sales and keep the dollar amount of an expense the same, we have decreased that expense as a percentage of sales. When we decrease our cost percentage, we increase our percentage of profit. On the other hand, if our sales volume remains the same, we can increase the percentage of profit by reducing a specific item of expense. Our goal, of course, is to do both: to decrease specific expenses and increase their productive worth at the same time. Before we can determine whether cutting expenses will increase profits, we need information about our operation. This information can be obtained only if we have an adequate recordkeeping system. Such records will provide the figures to prepare a profit and loss statement (preferably month our operating for most retail businesses), a budget, break-even calculations, and evaluations of ratios compared with those of similar types of business.
A useful method for making expense comparisons is break-even analysis. Break-even is the point at which gross profit equals expenses. In a business year, it is the time at which company sales volume has become sufficient to enable it over-all operation to start showing a profit. Once Artemis sales volume reached the break-even point, we fixed expenses are covered. Beyond the break-even point, every dollar of sales should earn an equivalent additional profit percentage. It is important to remember that once sales pass the break-even point, the fixed expenses percentage goes down as the sales volume goes up. Also the operating profit percentage increases at the same rate as the percentage rate for fixed expenses decreases – provided, of course, that variable expenses are kept in line. Sooner or later, company needs to find ways to improve profitability. There are three ways to improve profits in a company:
- Increase revenue faster than expense increases.
- Decrease expense while maintaining revenue.
- Improve productivity so people can do more.
Critique the cost and related benefits of advertising your office’s services. Many offices spend money on advertising and similar marketing ventures that yield them little benefit. Look first at any costs. So, we can offer a some marketing-promotion plan for reducing costs. The budget of Artemis Sportswear Company Promotional we’ll be 250 000$, 20% of advertising budget will pay agency fees and advertising development costs. All advertisements and supporting communications we’ll be developed by creative staff of the company. While the total budget of 250 000$ the budget will be increase by 15% each year to ensure meeting the sales growth targets. More emphasis will be placed on direct marketing, sponsorships and public relations in future years which will require an increase an increase in their budgets of 20%, 25% and 20% respectively. The advertising budget is expected to increase an average of 13% per year. Building a strong brand name should reduce the emphasis on consumer promotions, thus only a 5% annual increase is projected .
The primary goals of advertising program are to built awareness and to generate traffic for the retail operations. While the advertising will list website address, it will not be a primary focus of the advertisements. During the first six months of the year, awareness advertising will be a primary focus. During the second half of the year more emphasis will be placed on generating traffic.
For optimization costs and increasing revenue I offer to create SWOT analysis. For uor company we have such opportunities and strengths:
- specialist marketing expertise
- new, innovative product with young model and children sportswear
- location of our business in different market segments
- cost advantage through proprietary know-how
- quality processes and procedures
- strong reputation
- lack of marketing expertise
- undifferentiated products and service (i.e. in relation to our competitors)
- competitors have superior access to distribution channels
- developing market (China, the Internet)
- moving into new attractive market segments
- a new international market
- loosening of regulations
- removal of international trade barriers
- a new competitor in our home market
- competitor has a new, innovative substitute product and service
- new regulations
- taxation introduced on our product
For reducing costs and increase profits margins the company also have to improves compensation strategy. To my mind, Pay-Per-Performance system motivate employees and at the same time thanks note as recognition will do the job. Recent research suggests that it is more often than not those organizations that understand people, i.e. who are what has become known as ’emotionally intelligent’, who vastly outperform those who do not. In today’s world, emotions matter. In fact, they can matter twice as much as conventional intelligence and expertise put together in terms of accounting for business success.
Organizations that have developed the emotional competence of their sales force, for example, have found that the turnover of each individual can as much as double as a result. Product development time and time-to-market also decreases significantly when you recruit for and develop emotional competence in your research and development teams. Similarly, a number of current studies have shown that increasing the emotional capital of your organization brings advantages, such as higher quality innovation, improved return on investment from new strategies, technologies and acquisitions, greatly increased talent retention and also improved productivity.
- Mark Thomas Business-led Human Resource strategies Management Centre Europe, www.mce.be
- Jeff Sacht Integrated line management and HR planning http://www.equityskillsweb.com
- David Gibbons A NEW FINANCING AND OPERATIONAL STRATEGY FOR SCALING-UP MICROFINANCE FOR THE POOR
- Michael Sisco Does your company have an active cost reduction strategy?
- Bonnie Jo Davis Maximum Marketing – Minimum Budget
- Jeffrey Krivis Cooperative Defense Agreements Reduce Costs for Insurers
- John A.Tracy The Growth “Penalty” on Cash Flow from Profit The Growth “Penalty” on Cash Flow from Profit