Revenue. It's one of the top-of-mind things for executives and decision makers in any industry. How much money can be made, and how much will it cost to make that money?
This is the key, of course, to any business venture – ensuring that the top-line revenue coming in is high enough and that expenses are low enough that a bottom-line revenue is strong enough to support the business efforts.
The big mistake many businesses make is that they focus too much on one or the other. Companies will focus on lowering their expenses to increase their bottom-line, but there comes a point where you will have sacrificed resources that are necessary to generate larger gross sales that fueled the company to this point.
Conversely, some organizations will attempt to scale by increasing their gross sales. This often includes significant expenditure on new workers and sales people, and increasing expenditure in advertising in marketing.
The key to success on both fronts is balance. This means thinking through decisions and recognizing how they're going to impact each other on the top and bottom line.
Let's look at two common one-sided approaches and figure out how their negative impact might be mitigated or at least reduced, as well as look at viable options to increase both that are proven in today's market.
Bundling, Up-Selling, and Cross-Selling
This is a great opportunity to increase the top line. By packaging products or services that you offer together and adding value to the customer's experience with your organization, you can generate larger sales on individual transactions and grow your sales with pretty minimal effort.
The most common flaw here is that companies often underestimate what those bundled sales might mean for the rest of the company. Is there an added work load on processing these orders? Can the current staff of workers handle the increased output if the bundled sales are effective? Is there enough of a margin in the bundle to account for hiring additional workers to create more of our product or provide our service to the increased clientele?
These things will often increase costs and reduce the bottom line, meaning that poor choices when designing the bundle or up-selling strategy may actually result in increased gross sales, but a smaller profit margin – not beneficial to the business's overall growth and ability to continue to perform.
Reducing Costs by Cutting Employees or Reducing Compensation
When a company comes under hardship from bottom-line goals not being met, some organizations are quick to indicate that they will go on a hiring freeze, reduce the number of employees or cancel bonuses.
This can be demoralizing and destructive to the company as a whole, and while it may provide the band-aid and quick fix for decreasing the budget of operating expenses, it will quickly turn into a detriment to the top line if left alone.
Operating costs can be minimized and top line can be significantly increased by making work more efficient for the existing workers. Utilizing the existing base of labor more effectively results in not only a higher gross for the business, but a more positive environment.
Long-term operating cost effects need to be considered as well. If the company needs a certain number of employees to maintain the level of sales it was generating previously, it's unlikely that the cost-effective nature of reducing the workforce will pay out by the end of the year.
Solutions that combine cost reduction and gross income increases are often found in the field of process improvement. By taking a holistic approach to solving the business's problems, it's more likely that in both long and short term success you will see positive changes on both fronts. As an executive and a leader, it's important to remember that the success of the company is reliant on the consistent performance of the those two values and how they relate to each other.