Inflation is out of control.
Interest rates are soaring, ostensibly to fix inflation.
Raw material costs are through the roof.
Labor is hard to find and harder to afford.
Orders are late or not being filled in full.
Everything from utilities to rent, travel to insurance, salaries to benefits are all skyrocketing.
Yes, it's a scary time. And if you've read the first two installments of this series, presumably you've already tried (or at least seriously considered) optimizing revenue and controlling COGS. The fact that you're here means you're still looks for solutions, and you're not alone.
If you've completed Part I and Part II, you are ready to take on the hardest part. Next up, making hard choices to control expenses. Think you've scraped and pinched everywhere possible? You might be right, but let's make certain first. Believe me - in the end, you'd rather have turned over every stone here twice before raising your prices on the retail partners you depend on.
Change the script.
Implement a new CEO.
No, I'm not suggesting you step down.
I'm challenging you to get deeply injected and involved in understanding the expenses of your business so that you can build a hyper-focused Controlling Expenses Objective (CEO). You have to be able to know, with confidence, what changes in your organization are needed, why and what the impact will be on the overall P&L and business.
Here are eight expense management strategies to consider adding to your CEO before you turn to raising prices. Yes, eight. I know. It's a lot. But the sheer quantity of options here shouldn't intimidate you; rather it should give you hope that there are plenty of things that can be done before jeopardizing critical relationships. Let's run through them.
Consolidate and Collaborate.
The business world has been mired in relentless competition for generations, but we're now entering an era of strategic collaboration and community. Look for synergies with other companies (potentially even competitors) to consolidate vendor, supplier and overall business operations. Could you share a warehouse, staff or other expenses on a fractional basis? How could you utilize each other's strengths to mitigate each other's weaknesses? There's a myriad of ways to collaborate fractionally without formally merging businesses.
Trim at the Top.
Could you defer executive payments or reduce or eliminate corporate perks? I'm a firm believer that leaders eat last and that means everyone else gets paid before you do - customers and employees will respect that you are willing to sacrifice for the company. You will get much farther in their willingness to work with you when they know you are leading by example. It's hard to ask employees to defer raises or customers to accept increases if they believe those at the top are maintaining status quo.
Get Everyone in the Pool.
Many people want to believe that what they're doing matters to them, not just to the bottom line of the company they work for. To that end, members of your team might be willing to take a pay cut up front in exchange for equity or another compensation package that has the potential to tap into a larger back-end pool. There is no "we vs they" when it is just "us". Everyone having skin in the game, often inspires positive change and increased productivity.
Restructure the Team.
This one is ugly, but if it means the difference between solvency and bankruptcy, you must be willing to face it. We all want to create and provide steady jobs; however, salaries are often one of the largest components in the expense category of a P&L statement. The Big Quit, rising taxes, higher wages, increased benefits and all the other movements happening, have made each employee more expensive...exponentially so. More and more companies are replacing human labor for automated and AI options and outsourcing executive C-suite roles to fractional contractors. This is painful and uncomfortable to be sure, but as the leader of the organization, you may need to make the hard choices as a necessary step to business survival.
Creating awareness and demand for your brand and products through marketing is still a key driver to sales, but smarter marketing is now imperative. Shotgun strategies of expensive national ad campaigns, hoping to build brand awareness through volume alone can be a quickfire way to hemorrhage cash. Digital ads with numerous iterations that used to take an agency team of creatives six months to develop, can now be accomplished by two people and an AI platform in a few days. Not only is this faster and extremely less expensive, but the AI platforms can generate thousands of iterations, hyper-targeted by zip code, in just minutes. It isn't just more efficient, it's more effective. It's smarter. Automate what can be automated and utilize technology to boost efficiencies. For what cannot be automated, outsourcing fractional work can be key if you don't need or can no longer afford someone full-time.
Overhead costs can feel paralyzing, but they don't have to be static. You must act. Re-negotiate your leases. This can include leases on physical space, equipment or other hard assets and even supply contracts. Think of it like refinancing your home or automobile. Could you sign on for longer payments or better terms? You won't know if you don't ask, but in my experience, lenders tend to prefer to get paid over time instead of potentially not at all.
For many salespeople, in-person customer calls, new sales presentations and business development meetings have gone hand-in-hand with travel. Covid taught us that we don't necessarily need to be in office to be effective. Same goes for sales presentations and customer line reviews. Some companies have revised the evaluation of their sales and marketing staff to be based on their effectiveness when they are not in-person and instead, on their utilization of technology and overall ROI.
Is your lighting updated and energy-efficient? Do you leverage digital thermostats? Have you tapped into technology to make sure things are as economical and automated as possible, saving not only on energy bills but also in staff time?
How efficient is your manufacturing process? Are there scraps that are normally thrown away that could be repurposed to make a new product for a new segment? Could you tweak manufacturing equipment to further minimize raw material waste?
These may seem like small changes, but they can add up in a big way. Looking into any options to mitigate increases, even in small increments still is much smarter than ignoring opportunities and passing the inefficiency on to your customers.
Regardless which of these strategies make up the right recipe for your business, the critical point is that you have a solid Controlling Expenses Objective. There is no limit to how many new processes, synergies, and combinations you can develop to drive costs out of expenses, while also improving the overall efficiencies of the business. But without a CEO in place, it will be exponentially more difficult to manage moving all the levers required and communicating the necessary steps with conviction to your employees, investors, and customers.
If you've honestly run through all these strategies - plus all the strategies outlined in the previous installments - and still haven't flipped your P&L, don't despair. In the final installment in this series, we'll talk about how to strategically raise your prices, now that you truly have no other choice.