March 2008

Issue #4

Contain Costs and Put the Savings to Work

Simply stated, cost containment is all about managing margins. Gross margin and operating margin are the two key drivers in cost containment. Take a look at this $1 million sales company and note the margins:

Just How Important is Cost Containment?

There is not a business anywhere that could not put even a 1% improvement in margin to work. For example, this $1 million company could use a 1%, or $10,000, cost savings to fund a marketing initiative, install new technology, help pay for additional personnel, or make an investment elsewhere. And that's just 1% and just the first year. Each percent of savings compounds every single year.

Everything happens at the margin. Whether in sports or business, create the differentiation—and you win—every year.

Put This Theory to Work

Create a standing program for ongoing cost containment. Enlist your employees and provide financial incentives for those who identify and implement saving ideas. Just like on the sales side, small economies can add up to big money.

About Navigating Business Rapids

Every other month, Navigating Business Rapids provides financial tools that improve bottom-line results and build business equity.

CFO-Pro can assist you in implementing these tools in your business. We specialize in identifying the causes of negative trends and ways to take corrective action.

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Wisdom • Insight • Experience
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