Business Advisor Network Blog

When working to improve your bottom line, focus on the “3 Keys” of “Lead, Lift and Leverage”.

The “Lead” key is all about the organization’s leadership and management. The “Lift” key is all about lifting the business’ turnover through better sales and marketing. And the “Leverage” key is about improving the business’ productivity and efficiency in all areas of the operation.

Guess where most people want us to start?

If you said “Lift”, you’re right. There’s always an overwhelming desire to see a quick increase in turnover.

That’s fine, of course, and usually easy enough to do. But it’s interesting to note that often the quickest way to improve bottom line profitability is through working in the “Leverage” area.

The Leverage key is largely about ‘reducing inputs while maintaining outputs’. In other words, it means trimming the fat, without hurting the
muscle.

In many, many cases this can be achieved VERY quickly. And more to the point, a reduction in costs is often far more valuable than an increase in sales.

For instance, let’s say your business is achieving an after-tax net profit of 5%. And let’s say your product cost is 70%.

If you reduce your product cost by just 2%, you’ll achieve the same after tax profit as you would from a 17% sales increase!

Realistically, a 2% reduction in product costs could be achieved in the time it takes to make a couple of phone calls. On the other hand, a 17% increase in sales could take months.

Why not call YOUR suppliers (and their competitors) and ask what discount you’ll get if you fix your accounts in 10 days instead of 30?

What if you collect, rather than have them deliver?

What if you arrange storage, rather than use their warehousing space?

What if you buy in bulk?

What if you refer new clients to them?

And what about your under-utilised labour and facilities?

One of our clients now sub-lets its machinery from “midnight to dawn” when the equipment would normally sit idle. The income earned means that the company’s own production is virtually free. Other clients now use their scrap to create inexpensive but attractive knick-knacks which they use as “value adders” and gifts to clients.

The moral to the story? Simply this: work on ALL 3 keys. If you focus on just one or two, you simply won’t achieve the best or fastest possible result.

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