Certainly the old and over-used slogan, "Nothing happens until somebody sells something" couldn't be more applicable today. In this economy, we see a revenue shortfalls or sales decreases and challenges meeting expenses.
What's the solution? The knee-jerk reflex is for enterprises to cut expenses. The more productive approach is for them to figure out a way to sell more. What to do?
Cutting expenses delivers short-term benefits. Sure, cutting waste, cleaning up loose ends, canceling duplicate services all leaves a little more money in the till. But unless they've been asleep, or their calculators broke or they were (already) laid off their bookkeeper, there shouldn't be too much enterprise fat to cut. This economy didn't start yesterday.
Taking a very brief excursion over to accounting, expenses come in two flavors, and I don't mean big or small. I mean they are fixed and variable.
Fixed expenses are long-term regular costs like mortgage or rent, taxes, heating and electricity, debt service, equipment leasing and asset maintenance. Stop paying them, and the enterprise stops. Changing them is disruptive and requires a large investment now and delivers payoff over the long term.
Variable expenses are those that vary by the amount of activity. For a simple example, if a manufacturer uses 10 parts in its product and it usually produces 100 units per day, then they will have the cost of 1,000 parts per day. Now, in this economy they only have orders for 80 units per day, they'll actually save the cost of 200 parts per day. Of course, what else they'll experience is the lost revenue (sales dollars) of those 20 units per day. My best guess is that a big chunk of that 20-unit dollar volume includes their profit for that day. So we're not celebrating now.
Another variable cost is the labor cost (that's jobs). If they use 10 people to make 100 units in an eight-hour day (800 hours), but only have orders for 80 units, then they will only need 640 person-hours to meet the need. What to do? Paying all 10 people anyway is their initial choice until they get more orders. Or they build for inventory until they get more orders. Or they lay off two people or keep a reduced hour's shift. Bad choices, but business is hard in this economy.
At the same time they will reduce their orders to their suppliers and seek to cut discretionary spending to make up for the 20 percent revenue reduction.
Other costs are not only variable but discretionary. They may appear fixed but owners and managers get to choose to avoid them, reduce them or find a way to get the same value or result by spending less. Some of these are referred to as overhead. One way make these adjustments, since we've already cut out the waste and luxuries, is to ask: "How can we get the value delivered by this service or these products or for less?"
This is a great opportunity to sell into new areas within current customers and penetrate new customers. Today, categories of expenditures that have been closed to sales discussion for years must be examined in the light of this economy. In the vein of "If it ain't broke ... " reduced cash flow breaks everything. Any and all expense relief proposals are welcome.
In this economy, everything is open for examination. This is not a situation where there is no money to spend, but there is less money (20 percent in our example) coming in. Reshaping your approach and presentation will net new customers and orders because you are presenting a cost-effective value to boost productivity. The old reliable: "More, Better, Faster and Cheaper" pitch needs to evolve into the new and improved: "More Cost-Effective Value and More Productive for You" presentation. If you can deliver improved productivity at a relatively reduced cost, you will serve your customer and gain their business.
In addition you will create jobs for your company, create jobs for the customer and create jobs for your company's and your customer's suppliers.
In summary, this economy opens opportunity doors that were previously closed at current customers and new customers.
A proactive and researched approach builds new sales, pre-empts entrenched vendors, pre-empts competitors, makes you into job-creating selling machine and makes this economy a memory.
Craig Meyer has worked more than 40 years in senior sales and marketing assignments for technology companies including Sun Microsystems, Tandem Computers, Digital Equipment Corporation and GTE. Contact him at craig@northwoodsmktg.com. He prepared this article as a member of the Sierra chapter of the Institute of Management Consultants.
