PSISeptember2017a

How to be more profitable
According to Jim Rathbone of
Rathbone Results there are 19
ways to reduce costs and increase
your profits
here are three main ways to improve the
Tprofitability of your company: Sell more,
price higher and reduce costs.
Some organisations focus mainly on selling
and on delivering great service to customers.
That is great. Let us remember that profits can
also be increased by greater cost efficiency. How
do we achieve this?
At Rathbone Results, we draw on many
practical ways to help our clients reduce costs
and increase profits. Here are 19 potential
actions. How many might you work on to make
your business more profitable?
1. See every cost as “up for grabs”. No cost is
too small to worry about. Ask yourself: “If I
eliminated this cost, would revenue, customer
satisfaction or profits be adversely affected?”
For all costs associated with customer
satisfaction, be sure you are only spending on
what customers really value.
2. In areas where you wish to control costs,
set authorisation levels so that approval is
required before the expenditure is made.
3. Speak to your suppliers and negotiate
reductions on the cost of your purchased
products. What % of your sales are you
spending on purchased products? If this is 40%
and you reduce by 5%, you have added 2 margin
points to your bottom-line. Start with the
highest cost items first. You may wish to join
one of the industry buying groups if you are not
a member already.
4. Never let the purchasing person be the
sole person negotiating the price, as this
individual can get too close to suppliers. You
need to retain an element of the “tough guy”.
5. Improve the direct labour cost efficiency.
The efficiency of your engineers, whether
employed or subcontracted, is a huge area of
opportunity. Direct labour costs can vary widely
across the installer community from 20% to
35% of sales. There are a myriad opportunities
to improve direct labour cost efficiency and
some of them follow.
6. Start measuring your actual direct labour
cost as % of installed sales. You should also
track the gap between the priced labour and the
actual labour used - which can run into tens of
thousands of pounds of lost profit.
7. Make sure your installation costing sheets
capture all the known costs in the job. Review
the assumptions behind your hourly or daily
labour cost calculation to validate they are still
correct. Allow enough labour costs by building
in difficulty factors for jobs that are not
continuous, or new build, or in listed buildings
or for work at height etc. Buy subcontract labour
at a fixed price for the job.
8. During the job, labour costs can escalate.
Track the labour used especially on larger jobs.
Have sign off controls for extra labour
purchased. Assign engineers to the job with the
right skills. Motivate and manage the engineer
to finish the job to the right standard and in
budgeted time.
9. Consider the cost and use of purchased
services e.g. office supplies, IT, telephony and
maintenance contracts.
10. Only buy product for resale when you
have a customer order.
11. Determine what activities are core to your
business, where you want to develop a core inhouse
competence. Then look at what you can
outsource.
12. Of course, people are the biggest cost in
the business. Consider how productive is your
investment in people? Start by making sure your
(continued over)
No cost is too small to
worry about. Ask
yourself: “If I
eliminated this cost,
would revenue,
customer satisfaction
or profits be adversely
affected?”
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