You want to decrease costs but you do not know where to start.
Have you built up a number of locations from which you operate?
Do these locations vary in profitability?
This can depend on the same criteria as mentioned for products to discard. Ones where the market is saturated and ones that still have potential because they are new.
Because of the 80/20 analysis of the locations you can decide which, if any, should be terminated.
Focus on the four major determinants to put the 80/20 analysis into action to decrease cost:
- Grouping by product or product type.
- By customer type.
- Grouping by competitive segment.
- By other splits that may be relevant to your business.
Go to the Skills Module article: SM2.6 80/20 Business Analysis
What to consider with your locations to decrease cost:
- Can other (often virtual) outlets/channels provide sufficient ‘cover’ for the territory?
- Look at a website, marketing through online portals and social media.
- Do you need a separately staffed, physical office, at the location.
Your existing locations can also be digital. Websites and social media specialists can be quite costly. Consider whether these locations are returning on this investment and contributing to your net Profit.
You now understand the productive and unproductive parts of your business. As a result, you can reflect on the overall implications of the 80/20 analysis.
Use the economies of scale to determine how to manage the weaklings in your business. Ask yourself, should I shut it down, sell or spin off?
Go to the above Skills Module for the answers.