Scaling Back, or changing mindsets?
Given the current economy and my new projected retirement age of 103, I recently announced to my family that “we are scaling back.” Businesses are doing the same: tightening up, and scaling back. Sweeping changes and major layoffs make the big news headlines, and those may be needed. But if things haven’t slowed dramatically for you yet, preparing now by changing spending attitudes can create lasting impact, without turning your company on its head.
Changing spending mindsets creates significant opportunities that help pull you through the down cycle and most importantly, stick around for the upturn
- Do you train, and re-train your employees to treat all company assets and expenditures as their own?
When faced with an expense, ask them to consider this: If it was your own checkbook you were pulling out, would you make the same choice? The answer might be yes, but often it’s “Let me see if I can negotiate a little more” or “Maybe we can hold off on this until next quarter”.
- Try the 1% rule:
Show your employees what it means to the bottom line if each department finds costs savings of just 1%. Most of us can commit to 1%, and they won’t want to stop there when they see the impact of it falling directly to the bottom line.
Example:
Today 1% Rule $90 million Revenue $90 million Revenue $53 million COGS $52.5 million COGS $30 million SG&A $29.7 million SG&A $7 million profit $7.8 million profit
In this example 1% reduction in Cost of Goods and selling & general expenses is an 11.4% increase in profits!
Don’t forget to celebrate those who have reached their 1% goal.
- Stop spending on the things that are not value-added. What’s value added? Two questions will answer this before you commit to an investment:
- How will this increase customer satisfaction and retention?
- How will this impact profitability and growth long term?
- Don’t stop spending on the important things.
Always continue to spend on your most important assets: customer satisfaction, quality, and your brand.
For my own family, after I made the “scaling back” announcement, my nine year old thought that meant getting rid of the dog (whose vet bills are nerve wracking), and my husband immediately said he’s not giving up cable.
We have managed to make changes that, when carried out consistently, will have real impact over the course of the year: planning weekly dinner menus based on what’s in the Sunday circulars, sharing rides to soccer games across town with other families, and asking myself “is this a need, or a want” before buying anything. But, the dog remains with us, and family movie nights are still on. In other words, we changed our mindset to only choose extras that have the most positive impact in our lives, and the 1% rule is top of mind.
Whether it’s your own household or your business, shifting spending mindsets will go a long way towards creating a more positive balance long term.