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There's a big difference between Productive and Non-Productive costs.
Not understanding this difference will lead to stagnation in your business.
Not understanding this difference will lead to stagnation in your business.
Productive costs:
- Advertising
- R&D
- Sales
- Production capacity
(increase bottom line, lead to more business)
Strive to outspend your competition in these areas. Be ruthlessly efficient elsewhere.
- Advertising
- R&D
- Sales
- Production capacity
(increase bottom line, lead to more business)
Strive to outspend your competition in these areas. Be ruthlessly efficient elsewhere.
Your typical mom-and-pop SMB doesn't operate this way.
The good ones are hawks on keeping non-productive costs down, but they cut too deep - stunting growth.
You can spot these by their eye-poppingly high net margins.
The good ones are hawks on keeping non-productive costs down, but they cut too deep - stunting growth.
You can spot these by their eye-poppingly high net margins.
Upside for these businesses:
Increases in Top-line Revenue
But don't expect those fairytale margins to hold up. You'll have to spend the $$ in those productive areas to see gains.
Increases in Top-line Revenue
But don't expect those fairytale margins to hold up. You'll have to spend the $$ in those productive areas to see gains.
The bad mom-and-pops underspend in productive areas and let costs balloon in the non-productive ones.
Look for: Oversized SG&A tab with little to no advertising spend. Low net margin.
Look for: Oversized SG&A tab with little to no advertising spend. Low net margin.
Upside for these businesses:
1. Slash SG&A bloat (increase net margin)
-- use found $$ to --
2. Increase morale (EEs likely underpaid, underincentivized, undertrained, underequipped)
3. Invest in Productive Costs (increase revenue)
1. Slash SG&A bloat (increase net margin)
-- use found $$ to --
2. Increase morale (EEs likely underpaid, underincentivized, undertrained, underequipped)
3. Invest in Productive Costs (increase revenue)
Productive & Non-Productive Costs
Learning to view financial statements, CIMs, etc. through this filter will help you in your hunt for upside.
Learning to view financial statements, CIMs, etc. through this filter will help you in your hunt for upside.
