The Paradox of Cutting Cost

Two thoughts:

• Every dollar you cut from expense goes directly to your bottom line.
• You cannot save your way to business growth.

These two concepts are equally true and compete for the business owners attention. Let’s explore each briefly before we contrast.

Cutting Expenses
Benjamin Franklin’s adage that a penny saved is a penny earned is completely true. Every penny (or dollar in this case) that you cut from your expenses becomes profit. However, revenue added to the top line always has associated expenses. That means adding a dollar to the top line result in a net increase of $.30-$.70 to your bottom line. ( Depending on your profit margins etc.) This makes cutting expenses, or saving, seem like the best way to improve your profits.

Cannot Save Your Way to Growth
With very few exceptions, we all want to grow our business. Taking a cost-cutting mindset while trying to grow top line revenues limits your potential. Advertising, marketing and sales are require investments. At the same time, they will undoubtedly add expenses. These expenses are necessary to add revenue to the top line and grow.

Like every paradoxical situation these extremes the fall on the spectrum. Here’s how to determine where along the spectrum you should lean. Look at your top line revenue.

• How much money came into your business?
• Is that enough?
• If your business brings in that amount of money every year for the rest of its existence, will that be enough?

If your answer is no, I suggest you lean towards investing in sales and marketing to add new revenue to your top line.

Since I’ve made a few huge assumptions, please call me on them. Shoot me an email at jthomas1027@gmail.com or tweet.