If you're short on cash flow and you need to cut back, don't cut your marketing budget. During hard times, the first thing companies cut is marketing dollars. I think that’s stupid. There are many more expenses that can be cut first...
Cut Excess Inventory
I think the first thing companies should cut is inventory. All things being equal, I’d much rather put all my available dollars into marketing and pay a supplier (and I’d approach more than one with this offer) 105% or 107% in exchange for having him keep an inventory accessible. That frees up perhaps millions of dollars in capital that you could redirect into marketing.
It’s useless to keep a “ton” of dust-collecting products. If you have inventory that’s not moving as quickly as you want, don’t waste more money to have more of it on hand. Forecasting accurately will virtually eliminate having too much or too little inventory.
Trim Your Staff
Take a long, hard look at your staff right now. Is your staff too large, with too many levels? Are there idle employees who do not contribute to your business?
The more layers in your organization, the more convoluted and difficult and slow your decision-making process becomes. In addition, oversized staffs do not pay for themselves, are not cost-efficient, and increase your overhead, making it tougher for you to stay in the black. And don’t assume that all managers are great. The majority of them are not. You have to keep this in mind when you have employees under you.
Cut idle employees from your staff. After fair warning, don’t hesitate to terminate those employees who are not productive. Do not let them weigh you down when you need them to support your company objectives.
If you’re going to fire someone for being idle and nonproductive, you’re going to think about refilling that position. But, maybe you’d be better off making do without filling that position for awhile; until you get back on your feet. So rather than re-fill that position, perhaps you could sub-contract labor from outside sources when you need it.
This entails a very candid and honest look at your employees, and they may include some very difficult decisions. Obviously, you want to consider loyalty and years of service. However, you cannot do this if you jeopardize the existence of your organization. A better alternative might be to offer part-time work to several employees (rather than letting any one employee go).
Don’t Waste Advertising Dollars
Don’t spend any marketing dollars until you know the marginal net worth of your customers. Once you know the marginal net worth of your customers, then convert your advertising strategy to buying customers instead of just writing ads. The more ads you run, the more possibility you have of accruing a bigger customer base.
Redirect all of your energies to promoting and selling the top-producing product lines and forget about your “dogs.” You must zero in and take aim in order to survive, and you can’t do that if you’re promoting 20 different lines.
Decide which products or services you want to sell, taking into consideration the profit margin, and work that product until you can’t possibly sell any more. Then, and only then, move on to the next product in your inventory.
Farm Out Work to Other Businesses
Keep in mind that other people have got many assets you could access: personnel, facilities, technical production, storage, and delivery resources. Look for segments of your business that can be farmed out to others. This money-saving technique is especially good for fledgling businesses and seasonal companies (if your specific situation permits). When you’re short on cash flow, turn to outside sources for particular job functions that will allow you to eliminate the expense of maintaining a department that isn’t paying off. If you’re broke, you need to run a bare-bones, cost-efficient operation until you start making a profit and the economic turmoil settles down.
Maybe another business has delivery trucks they’re using only 40% of the time. And you’re using your delivery trucks only 10% of the time. If your delivery items aren’t time critical, maybe you could make a deal with that other business where they integrate your deliveries on their routes. There are all sorts of possible alignments.
Of course, if your products or services need to be sold by a live person — if your customers need persuasion, demonstrations, or explanations — you’ll need to retain your in-house salespeople. Or if customers calling your business have questions that must be answered, then you’ll need to retain an internal telemarketing department.
But if the products or services can be sold without the benefit of a live salesperson — that is, if the customer can simply write in, send money, or call in — then your business can maintain a manufacturer’s representative to call on when the need for selling functions arises.
Keep in mind that other businesses have facilities that aren’t being maximized.
Go to them and say, “Look, I’m your competitor but we’re both having a hard time. You’ve got this capacity that you’re locked into, and I don’t. If you could handle another $20,000 a month, it might defer your overhead while making you a tidy profit. By comparison, my overhead is killing me. I’d like you to help me out on my end and do my order fulfillment as long as you’ll do it for what it’s costing me on a per unit transactional basis. I would love for you to take it over. I could get out of my fixed overhead.” And a lot of times, enemies can be allies.
How about renting machinery and equipment? Sure. Somebody may have an expensive piece of equipment you could use, that they only use it eight hours a day. Rent it from them during the times they’re not using it. Send your employees to do the work, or “rent” night-shift employees from the other business.
Or, rent out your machinery to others. There are absolutely no rules. Try using telemarketing services and 800 numbers instead of your own in-house department. This is important because it shifts your costs from fixed to variable. If something isn’t working out, you can get out of it faster and easier. If it does work, you can escalate faster. Or you can replace it.
Farm out work like telemarketing; have your people call in to 800 numbers to place their orders. Farm out your product fulfillment to a fulfillment house. Consider renting any equipment or machinery you need until your cash flow increases again.
Hire such outside sources for a percentage of profit. If your business has a good track record — where every time you send out X letters, you get X orders and amount of profit — then the outside company will be delighted to work with you since they can “guarantee” an income that you’ll bring them.
Keep your office spartan. Keep your staff to a minimum. Reducing your overhead now can mean the difference between profit and loss.