Increasing sales is an excellent way to increase profitability,
but reducing costs is often equally-or even more-effective. David
Cohen, president of Expense Reduction Group Inc., a cost reduction
consulting company in Boca Raton, Florida, illustrates it this way:
A company with a 10 percent net profit margin would have to
generate $1 million in new sales to have the same impact on the
bottom line that saving $100,000 in expenses does.
Cohen recommends taking a careful look at any item you purchase
repeatedly. Expenses often overlooked are those raw materials that
are not used for your ultimate product. "Do not reduce price
by reducing quality or service levels," Cohen cautions.
"Look for creative ways to bring costs down." Such
creativity may include re-designing or re-engineering a particular
item to achieve a lower cost with the same result, doing simple
comparison shopping, consolidating suppliers for quantity
discounts, or reducing freight costs by using local vendors.
Because it's easy to get complacent, Cohen recommends
putting all your regular purchases out for bid at least once or
twice a year. That not only keeps your vendors on their toes but
also forces you to examine the products you're buying to make
sure they're what you really need.
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