Part of our role as strategic advisor is to challenge what’s possible with questions on key areas of Gross Profit performance:
Production Efficiency – how could the business possibly improve production efficiency, for instance by investment in plant, by recruitment, changes in work processes and in fact any effective ways?
Buying – how could the business improve buying procedures, stock management, purchase contracts, or suppliers to reduce the Cost of Sales?
Production Salaries – how could the business possibly improve performance by potential restructuring, recruitment, culture improvements, training or any effective ways?
Moving on from the Trading Account, at last we make it to costs and when it comes to this area of profitability, it’s important we don’t play into our clichéd caricature, as destroyers of businesses who just don’t get it!
My recommendation is that to move past this lazy thinking, we present costs to clients as one of four groupings:
Vital – without this cost investment, the existing business model is unstainable.
Necessary – to maintain the current structure of the business without strategic restructuring, this cost investment is required.
Building – in the short term, this cost could be curtailed without significantly harming the future of the business.
Luxury – this cost has no real impact upon the future success of the business.
Using this grouping and definition approach, you are less likely to waste time and annoy clients, but importantly, you are more likely to elicit at least some Luxury cost savings, by choice!
With top line, trading account and costs covered, you will be sure to improve clients’ bottom lines!