The goal of all businesses is higher profitability in different ways. Sometimes this profitability is by increasing the percentage of profit, reducing initial costs (production/purchasing), hiring highly productive workers, or even using marketing and digital marketing. But one of the points that is paid less attention to is current expenses. Since entrepreneurial people usually forget the operational and executive aspects of their business in the shadow of their excitement, ideation and dreaming, it is necessary to constantly remind them to pay attention to its cost structure, subtleties and challenges; This issue is one of the points that accountants, financial managers or marketers are generally concerned about analyzing and presenting.
In this article, we intend to express the methods of increasing profitability within the organization in simple language. These methods are for all businesses and their values are different depending on the size of the system.
first word
It may be a bit confusing to say that you should even control your financial inputs; Or that the most important success factor in all businesses, especially startups, is timing, not even investors and budgets, or maybe the fact that the number of employees and sometimes the level of education in some businesses is less important than the passion for work is shocking to any reader at first; But the truth is beyond the sweet motivational words of salesmen and bullshitters on Instagram and online.
Note:
- Throughout this article, goods mean physical, virtual products, services, and whatever you sell for profit.
- All the items in this article are about the economy and type of business in Iran. All articles and marketing methods in Gelavizh are localized.
Success factors in business
First, you must be honest and transparent with yourself and your business system. Maybe this word causes discomfort or is contrary to all the yellow words of the law of attraction and internet motivations; But this is the truth; Your business is not special; You are special only if you keep the quality and price reasonably close together. The biggest traders, marketers and billionaires in the world also have their competitors. All successful businesses follow a series of marketing factors. Innovation, creativity in brand and branding, trend, modern advertising and most importantly, correct timing are among the most important factors of success and attracting trust in business. If you look carefully, you will see that in the end all brands are seen as more successful or different with the degree of difference they have, but in the end they are in one general category: business!
Golden situations
The next factor in the success of a business is management and quick and accurate decisions. Golden situations are generally fleeting. Those who are more successful are those who correctly recognize golden situations first and then work hard to get them. These golden opportunities are never looking for you. This is one of the easiest ways to recognize it. If you see someone trying to sell you a golden position by repeating and insisting, it is a dangerous situation. Like the seemingly new generation of networkers who promise big money soon by selling shampoo.
Timing in business
Timing in businesses and especially in start-ups is the most important success factor based on the research of the Ted/Ted Talks Association. For example, if Internet taxis were launched in Iran in the early 80s or even late, it would have been a huge failure. Not only because the country did not have the necessary infrastructure at that time (even in this period), but also because of the lack of urgent need for Internet taxis and the lack of trust in the online sector. Or even Jabama or similar programs. Villa rental in the early 1990s was also a failure. This time, because the infrastructure and confidence of online shopping was formed in that period, but because of the low reception of hosts and rental villas, timing is the most important thing in every stage.
Control of input costs
Controlling input costs is one of the not so complicated steps to increase profitability. Each entry is not profitable by itself. The fact that only an amount with a few percent interest is entered into the system does not increase the profitability of the business according to the existing conditions in Iran. The truth is that any money that enters the system, no matter how much or little, is definitely not profitable.
The timing of sales and more importantly, the amount of profit according to the timing, determines the profitability of the entered amounts. Sometimes, capital friction (so-called sleeping on capital) causes real profitability to disappear. Of course, many factors such as inflation are also influential in this case.
When a product is sold more than the usual time and does not have an acceptable profit for the system, that product should be removed or replaced. The criteria for measuring time and profitability are completely recognizable in comparison with competitors. More than 98% of products have competition and you have to accept that practically no business has a unique and unique product for sale. The only measure of difference; Quality, price, availability and in some cases after-sales service. If you are a website designer, have a factory, restaurant, start-up or any other type of business, you are competing.
So replace having low yielding products with high yielding products. Keep them only if they are not costly to the system to maintain, but don’t extend them. Assuming you’re making a profit, you’ve committed storefront space, manpower, or similar factors to a product that should be substituted for a higher-profitable product.
Control of output costs
Output costs are different from current costs. In the following, we will explain the current costs. Outgoing costs are unforeseeable costs that are usually associated with unexpected events. Anything outside the mentioned definition is called additional costs.
How to control outgoing and additional costs?
It is enough to consider 2 things before any action:
- How does this change help profitability?
- Who can best meet the need for this change?
We avoid explaining complex topics and terms with a few simple examples. Imagine you are a manufacturer; Your device operator is always at risk of physical harm. What is your smart way to meet this need? Probably allocating funds for heavy insurances, due to accidents along with unemployment insurance for the employee. But this method only adds a running cost to your expenses. It is a smart way to create safety while doing the work for the person in question. Just secure the device or the person.
You avoid paying additional costs to the insurance mafia and more importantly, you give better and more motivation to your force. You show him that his life and health are respectable and important to you. This will increase morale and, as a result, more productivity. You can reduce your extra expenses simply with a little intelligence or advice.
Second example, if you change the window or decor of a store at long intervals, you have considered a marketing or advertising budget. But if you decide to make this change twice a year for any reason, it is called additional costs and you are even out of outgoing costs. This work is not related to marketing (current costs) and has an impact, nor is it considered an unexpected external cost.
Current cost control
Current expenses include all expenses that you incur on a regular basis (daily, weekly, monthly, yearly or more). Employee salaries, business maintenance costs (rent, energy carriers, etc.), food costs, and all similar items are included in the category of current costs. Controlling current costs is one of the simplest methods of control and analysis. The lack of efficiency of an employee compared to the salary received and high maintenance costs are the most common factors of excess current costs. You don’t pay based on the employee’s degree, but based on his abilities and productivity. Many companies around the world are trying to recruit people who have obtained relevant degrees from prestigious universities.
By itself, educational qualifications are not a guarantee of ability. Academic qualifications indicate a person’s ability to study or study. We all know that the information that the university or some schools provide us has more or less distance from the real world. This is an exception to some medical or related sciences. Even in the most prestigious schools, the information entered will expire after some time and the staff must always be up-to-date and have new information, and this is no exception in any science except traditional medicine.
Therefore, having a committed, up-to-date, good taste, creative and able to perform in the relevant science is more important than university degrees. On the other hand, unfortunately, some people who have a valid degree, after being hired, rely on their degree and refuse to perform their duties correctly; Of course, this rarely happens.
Always keep an eye on current expenses. Sometimes, after some time, some additional costs are included in the category of current costs, whose presence is unreasonable. Usually, these costs originate from the repair of multiple failures. Such as the permanent breakdown of a computer or a production device, which can be avoided by anticipating these factors and using experts or quality goods and spending once correctly, from many costs that eventually become more expensive; prevented
Additional costs
Additional costs usually include start-up or old businesses. Businesses that are in the middle age of the brand, due to having managers who have been present since the beginning of the brand’s activity, have less additional costs. Therefore, the lack of experience of new managers or the fact that managers are new in old brands sometimes causes this category of expenses.
Additional costs include high salaries without returns, additional facilities without creating returns for colleagues, and the like. Sometimes, due to the presence of investors, unnecessary purchases for the brand or advertisements without return and without strategy have also been made, which type of expenses include additional expenses.
Usually, factories put the travel expenses of their forces on the agenda. But the more logical way is to provide transportation service for employees, which has 2 premium features. One: the arrival and departure times are on time for large and powerful systems, and two: the fee paid to the service drivers is lower than paying a separate fee to the forces.
last word
Controlling costs and increasing profitability require intelligence, knowledge, and strong financial and marketing management skills. In fact, smart decision-making and strategic choices play a crucial role in achieving these goals.
The Gelavizh team supports you through business coaching services across all areas of finance, business development, and branding.
Frequently Asked Questions (FAQs)
1. Why is controlling operational (ongoing) costs crucial for a business?
Controlling operational costs helps manage financial resources more effectively, prevents capital waste, and significantly boosts profitability.
2. What is the difference between operational, incidental, and unnecessary costs?
- Operational costs are regular and recurring expenses like salaries and rent.
- Incidental costs refer to unexpected expenses such as sudden damages or emergencies.
- Unnecessary costs are non-essential and unproductive expenses, like unplanned purchases or ineffective advertising campaigns.
3. How can incidental and unnecessary expenses be reduced?
Through careful planning, need forecasting, consulting with experts, and focusing on preventive strategies instead of reactive solutions, businesses can effectively reduce these expenses.
4. What role does timing play in business success?
Proper timing in entering the market or launching a product is a key factor in business success. It can prevent failure and significantly improve the chances of success, especially for startups.
5. Why is a university degree alone not a guarantee of employee competence?
Academic degrees indicate theoretical knowledge but may not reflect practical skills or real-world readiness. Commitment, creativity, and the ability to execute tasks matter more in today’s business environment.
6. How should low-profit products or services be managed?
By removing or replacing low-profit items with high-yield ones, businesses can optimize shelf space, manpower, and operational resources more efficiently.
7. What should be considered when injecting capital into a business?
Capital inflow does not necessarily equate to profitability. It’s essential to evaluate the timing of sales and the profit margin associated with that timing before making financial decisions.
8. How can workforce management contribute to business profitability?
Hiring high-performing staff, fostering motivation, and ensuring workplace safety lead to increased productivity and reduced unnecessary costs.
9. What are the key elements of business success?
Innovation, creative branding, modern marketing strategies, proper timing, and quick, accurate decision-making are all essential factors that contribute to overall business success.
