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Sell Less - Make More Money! |
In today's business news, it's surprising to read articles about large corporations that have increasing sales, but decreasing income. This prompts the question, how is it possible for a company to sell more but make less?
Business managers often assume increased sales result in increased income, but this correlation is not always accurate. In fact, it is not that unusual for a company to experience a decrease in income when there is an increase in sales.
This can happen for several reasons, but the most common are as follows:
Low Pricing
High Fixed Costs
So how can a company convert fixed costs into variable costs? The first step is to review the fixed costs.
Most growing companies tend to increase their staff quicker than they should, especially when payroll is one of the largest expenses companies will incur. To increase variable costs, consider reducing headcount by utilizing contractors instead of full-time employees. Also, paying employees hourly instead of salary is a great alternative for controlling labor costs.
Similarly, when a company increases production and staff, more equipment may become necessary. Rather than purchasing equipment, consider leasing options. Lease payments are often lower than purchase prices, and their implementation can help conserve cash for other uses, such as payroll and payables.
It's also important to evaluate unnecessary fixed costs. If the company has fixed costs that are redundant or nonessential, determine ways to consolidate them. For example, if the company has various locations, try to merge the goods and services that keep each location running properly. Instead of making every location procure their own items, negotiate with vendors to purchase materials for the entire company. This strategy will help control and reduce costs.
Sales
Understanding the company's operating costs is essential for effectively controlling them. By modifying fixed costs and developing a valuable sales strategy, the business can better adjust to fluctuations in sales. Whether they are up or down, the company can still acquire profits and prosperity. |