Protecting & improving profit in today's Covid world
The pandemic continues to wreak havoc across hundreds of thousands of businesses across the world. With a need to constantly display agility, and in some instances re-invent their businesses, leaders need to also think about profit as much as maintaining cash flow.
There are only three fundamental means to legally improve a firm’s profitability. Most leaders will use a combination of the three:
- Reducing costs
- Increasing prices and/or reducing discounts
- Selling more
Understanding how each of these approaches impacts on the bottom line is critical to maintaining and improving profitability.
Cost reduction, is of course, the classic default reaction to the crisis. After all, your cost base is exclusive to your business. It’s an easy short-term option. However, you have to be careful you don’t cut so much that you fundamentally harm your core capability and damage your long-term business success.
There are other businesses where in these difficult times their costs may need to be increased due to the need for protective clothing, new equipment, staffing (drivers), transportation etc. In such cases it’s more appropriate to focus on cost management.
Managers who don’t fully understand finance will often reach for the “let’s increase our prices” option. Unfortunately, unless your products & services are in great demand, increasing your prices has limitations. Here, ‘price elasticity’ needs to be understood and modelled to sensibly implement such an approach.
Increasing discounts to generate more sales has a role to play. But again, you need to ask yourself how much more do we need to sell to fund the discounts? Your firm’s ability to accurately model the relationship is key to successfully leveraging the approach.
Our new “Navigating out of the Storm” programme focuses leaders on these profit fundamentals. We model the methods to show how you can make better informed decisions and communicate them with power and persuasion to your management teams.
The programme provides a unique, intensive and high value-added opportunity to plot your company’s course out of the pandemic and into a brighter future.
Learn more about what this course will include.
Posted on January 11 2021 by George Fildes
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