Losing Money by Saving Money
How can you lose money by cutting costs that appear to be saving you money?
It’s really simple. Any action you take may create effects that you don’t think about. For example, the Vice-President of Marketing decides to cut down on some expensive advertising and is quite proud of the money he has saved his company. It looks great on the Profit & Loss Statement.
However, the Vice President of Sales now finds that sales inquiries have been reduced and his sales for the period have declined. Money was saved in one department at the cost of a greater loss of income in another department.
Working with the provider of the lowest bid is no assurance of any actual financial savings.
- If it involves more time or involvement on your part or could cost more in other ways, cost savings disappear quickly.
- If a shipment arrives late, or fails to be picked up, gains disappear.
Whenever you are cutting costs, it is critical to understand and analyze the potential effects changes will have on other areas of the company to make sure that any savings created are not offset by a greater loss somewhere else.