8. Alternative Approaches to Higher Profits 20% cost reduction or 40% increase in sales revenue both yield a 40% increase in Net Profit Column1 Current 20% Cost Reduction Increase Sales Revenue $ 100 $ 100 $ 140 Direct operating costs $ 35 $ 35 $ 49 Labor costs $ 35 $ 35 $ 49 Non-core indirect costs $ 20 $ 16 $ 28 Net profit $ 10 $ 14 $ 14
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12. No savings, no fee “ You guys have done what I’ve been trying to do for three years, but couldn’t. Either I didn’t have the time, or the energy, or the expertise.” Senior Vice President/ General Manager, Gleason Industries
Hinweis der Redaktion
This table highlights the profit-making possibilities of reducing your non-core indirect cost by 20%. While every dollar saved is equivalent to a new dollar of profit, additional dollars of income are not. Applicable expenses must be deducted from the sales dollar to determine the remaining profit. To have the same effect on your firm’s business value, you would have to increase your sales by 40% The January 19, 2009 issue of fortune Magazine has an article entitled “How to Manage Your Business in a Recession” which sites McKinsey Research saying that they have found that in a typical S&P 1500 company, a price cut of 5% would have to generate increased sales volume of 19% in order to pay for itself – and that almost never happens.
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