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Increase Revenue or Reduce Expenses: Which Is More Effective

Increase Revenue or Reduce Expenses: Which Is More Effective

Running a successful business is a challenge not to be taken lightly. There is a considerable amount of issues to factor in, including short-term viability and long-term success. In general, you should carefully examine every important business decision to make sure it serves a short-term requirement, while at the same time keeping alignment with long-term company goals and values.

Businesses are being put under an enormous amount of pressure to increase profits regardless of the accompanying economic climate. To be able to deliver on this requirement companies need to tackle the challenge in two fronts:

  1. Increase Revenue

All companies sell some sort of good or service. To increase the amount of money coming in there are various alternatives that complement each other. The first one is to generate more money from existing customers. This can be accomplished either by upselling or cross selling. Another alternative is to increase the price of the current product. This approach poses a problem if demand is too elastic and an increase in price generates a drop in demand. A third option is to enter new markets with the current product line. This is possibly the most promising alternative and as such it should be the one that receives more attention and resources. To achieve the exponential growth businesses seek, entering new markets is a very efficient way of reaching a larger customer base. A side effect is the creation of economies of scale that in turn reduce spending to increase profits even more. You can learn more about entering new markets in this informative article: http://www.inc.com/karl-and-bill/5-step-primer-to-entering-new-markets.html

  1. Reduce Expenses

Even though rising revenues is by far the best approach to increase profits, since the limit up to which they can be increased depends on how big the market is, the other side of the profit equation is very important to manage as well. All things being equal, a decrease in expenses will translate into an immediate profit increase. The strategies by which expenses can be reduced vary greatly depending on the type of business and its cost structure. For labor-intensive companies, ensuring optimum staff levels might be the way to go, while for manufacturing companies an improved production process or vendor negotiation could have a bigger impact. One area where the majority of businesses can get an instant expense cut is by running their operations from an executive office suite. Since common area expenses are shared amongst various tenants, and space is optimized for the current workforce (no idle work stations for growth – they are procured and paid for as needed), the expense reduction starts from the day you move in to one of these spaces. Companies like the one found in http://www.officelist.com/ specialize in finding the perfect space to match business needs and reduce current expenses in the process. Another benefit is that these setups come already furnished, eliminating the cost of outfitting the space.

So there you have it. Increasing revenues and reducing expenses. In order to promote growth and alleviate the pressure to increase profits, every manager or C-Level executive should be focused on these two areas of their business.

 

Credit to Jessica for the article. She can be contacted at info@officelist.com

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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