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22 Sep 2014

The 5 Costs that You Cannot Save

Basic Financial Intelligence: Know the difference between price and value. Save cost, not save value.  In business, there are 5 costs that you absolutely cannot save, for they are not costs but value: 
  1. Training: for if your people are not trained, they will do things the wrong way and this will cost you more than the training cost.  By far the biggest training cost is not the training fee you pay to external trainers like us, but on-the-job training.  Like your staff make a mistake and your company has to compensate the customer for this, this must be a large training cost!  But if your staff is trained to do the right thing, you would have avoided this large cost
  2. Marketing and Sales: even the world's largest consumer product company Apple has to incur hundreds of millions dollars on sales and marketing, what makes you think your company can save this cost?  Your sales would definitely drop if you cut you this marketing and sales cost.  The largest portion would be salespeople remuneration and sales incentives, and this too cannot be cut or you will have a sales team that under-performs
  3. Compliance with Legal and Safety Regulations.  This is obvious and needs no mention
  4. Staff Salary for the Right Team.  For the wrong team, you should not cut staff cost but simply get rid of the wrong people.  Please pay well for the right people for they are your profit generators, definitely not a cost
  5. Purchasing Cost.  If you cut your purchasing cost, like reduce remuneration for your purchasers and squeeze your suppliers, what you will get is high purchase cost. Purchase cost includes not just cost of purchases, but also stock-out costs, delivery costs and opportunity cost for not having purchased the right goods and services.  Click here to see how to have Successful Purchasing Strategies.  Related articles: (for courses see here)

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