costreductionIf you’ve been following my writing, you’ve probably read more than once there are only three way to grow revenue – get more new customers, increase the value of your average sale, and increase the frequency and volume of repeat business.

I wish I would have thought of that first, but it’s been known for a long time. And it’s true. There are no other ways to grow revenue.

I’ve been asked why I don’t include cost reduction in the revenue growth equation.

When you think about it, the answer is obvious. Cost reduction has nothing to do with revenue growth. Cost reduction is related to profitability and cash flow.

There’s another thing to consider when thinking of cost reduction — actually there are two things: 1) cost reduction is something all business leaders and managers should be mindful of and doing — it’s prudent 2) cost reduction efforts can give a business a boost, but over time its effects diminish. There’s only so much you can cut and so far you can go to reduce costs. As some point, cutting costs reduces operational capacity.

If you’re in business and focusing hard on reducing costs to make it — you likely have a revenue problem. While you’re cutting costs to survive, you need to get focused on making money. And as you know, there are only three ways to do that.

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