Last Word: Don't Cut Too Close To The Bone

Feb. 1, 2009
Whether perceived or real, this recession is real enough in the eyes of the consumer thanks to our 24/7 national news. It's my belief that things are

Whether perceived or real, this recession is real enough in the eyes of the consumer — thanks to our 24/7 national news. It's my belief that things are already turning, and the outlook is a little more positive, but it could take a year before consumer confidence completely turns around and we get things back on track. The trick is to have the right resources in place when the turnaround occurs. If you share this belief, here are three things you need to focus on:

First, figure out what you can do to differentiate yourself from your competitors at a time when the worried consumer will tend to look at first cost, trying to hang onto every dollar he or she can. You must be able to convince customers that your proposal will truly save them money, either directly through lower utility costs, or through reduced cost of ownership. Otherwise lowest price will be a major consideration. Comfort will also be a determining factor, but remember, all your competitors know the buzzwords now.

Second, get and stay lean. How? This requires a close review of spending so you can identify what's not helping you bring in revenue, and what's keeping operating costs too high.

Start with those expenses you brought on when times were good that, perhaps, made life a little more comfortable for you and your employees. Are there services you use that don't really contribute to the bottom line, but are nice to have? What about the products and services you are currently offering? Is that new niche really profitable? For example, maybe you started cleaning ducts, or installing insulation, but when you look at real net profits, you might be better off outsourcing it.

I won't go into a lot of detail, but with some soul-searching you can find ways to tighten up, making some sacrifices without compromising essential expenditures.

Third, and perhaps most important, when it comes to cost cutting, be careful not to cut too close to the bone. In down periods, the tendency is to withdraw — to reduce personnel, sell off vehicles, slash marketing and training budgets, and try to drop the company down in size so you can be “leaner” to weather the economic storm. While some cutting may be necessary when trying to conserve cash, all too often we begin cutting the very things that make us successful. The problem with cutting too close to the bone, is it's very hard to grow the muscle and tissue back that you will need when things turn around.

When the economy gets back on its feet, there will be a lot of pent-up demand for your services. There will be a large number of customers who “deferred” maintenance and replacement, as they too waited for things to turn around. Many of your weaker competitors won't weather this storm as they have no reserves and are already operating on fumes. Stay the course, continue to be a leader in your market, and let customers know all along that you're still standing strong, ready to serve their needs. You'll send a clear message to your customers that you're the kind of company they need to do business with.

Another problem with cutting too close to the bone is you may not be able to bounce back and have the resources in place to serve your customers. You may not have the techs and trucks you need for the flood of new business that will be available out there.

If you slash your marketing budget now, you won't have the marketing in place to continue the top of mind awareness you may have invested in over the past several years. If you cut your training out over the next year, you may not have the competitive edge you need to differentiate your company's services when it really counts.

So what's the answer? Balance. As you look at tightening up, spend some time evaluating each operating expense, every capital expense, and put it through three different filters. The first filter is to determine if the product or service is doing anything for you right now. The second filter is to assess whether it will weaken your ability to get what business you can and differentiate your company right now. The final filter is to determine if it's a long term investment that if cut, will weaken your company and your ability to bounce back when things turn around.

By using these filters you can prioritize each cost and determine which will give you the best short-term and long-term bang for the buck. If you do a little planning now, you will come out of this better and stronger than ever.

Dominick Guarino is Chairman & CEO of National Comfort Institute (NCI), ( a national training and membership organization focused on helping contractors grow and become more profitable. Email him at [email protected] or call NCI at 800/633-7058.

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