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Don’t Ruin The Secret Formula

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The Secret Formula

The Secret Formula

Note: Last week we celebrated Memorial Day; which is the unofficial beginning of summer.  As such, I will begin the summer schedule for my blog posts.   For those of you who are new to my blog I typically keep summer topics mostly non-business related.  This year it will be about the same but I think I will commit to having a business blog at the beginning of every month.  I may sprinkle in an extra business topic during the summer if an idea jumps out at me. I will resume my schedule of alternating between business and non-business topics on Labor Day.

Cost reductions are a good way to keep your price competitive or to increase the net profits from your business.  Today, I want to give an alternative view of cost reductions.  It is a warning to not take the cost reductions too far that it significantly changes your product or service.  But first I will tell a story that led me to writing this.  I moved into my house a little over 2 years ago and am disappointed about little things that make a big difference.  These little things are not present in my house and it can upset me at times.  Things like an abundance of light switches and electrical outlets as well as telephone jacks.   Telephone jacks may become obsolete soon as cell phones and VoIP will take over so maybe I can give my home builder a pass with that.  Overall I love my home but these little things create dissatisfaction and could be avoided with minimal cost.

Let’s get to the heart of the discussion.   I can understand why they put the minimum amount of light switches and electrical outlets – cost savings.  If you are a home builder of any scale you begin to think about taking those savings that “no one will miss” and multiplying it with the number of units you will build and you can see big dollar signs.  Please note that in the previous sentence I used units not homes to emphasize a point that they are missing.  It might be another unit to the builder; but it is your HOME.  

Even if you are not manufacturer with millions of dollars sales you can make changes in the way you deliver the “goods” but you must be sure the small savings doesn’t hurt you in the long run.  That home builder may start noticing that his referrals are going down and causing a drop in sales.  Perhaps the fact that these little things have been cut are drastically affecting satisfaction and by extension referrals.    For a home builder, a $300 savings on little things can be a mistake if even one sale is lost due to an unhappy customer.  Why lose the wow factor for $300? 

On a smaller scale even the small business can alienate their customers or potential customers by altering the secret formula.  Perhaps it is a change to an automated operator menu for your phone system versus a live person answering the phone.   In a sense you can take the old adage of measuring twice and cutting once and apply it to cost cutting in your business.  If you take the time to carefully consider all factors involved in the cost cutting and you still think it will be ok then make the change.  I advise that you closely monitor risk factors identified with the cut and if you see an unintended consequence of your cost reduction strategy revert back to the old way or modify the new one.

Have a great week finding cost reductions that won’t alter your “secret formula”

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Written by pacelinebiz

June 3, 2013 at 8:02 am

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