Times are – as usual – very interesting and exciting. Depending on the leaders we talk to, we hear stories of strikes, risk of lay-offs, flat growth, or in other cases, incredible growth and difficulties to fulfil market demands. Although the business environment seems increasingly asymmetrical, one trend remains prominent, the projection of flat sales or a very short order backlog, leading to uncertainty of top-line growth for 2023. In this article, we outline some of the strategies that companies can use to grow margins, even in the most challenging of sales environments.
It is worth noting, that when looking to grow margins in times of flat or decreasing sales, a universal response that applies to all organisations does not exist. Instead, the response strategy should be customised to each organisation's specific situation, objectives, and business environments.
At SLG, we have honed a comprehensive margin management approach through our many years of experience in assisting clients to grow margins. This approach encompasses a combination of tactical measures, organisational transformations, and strategic decisions, all aimed at achieving lasting margin improvement and correct fit for purpose cost structure.
Cost Cutting
The most straightforward way to increase margins is to reduce costs. This can be achieved through a variety of methods, including streamlining operations, reducing waste, and negotiating better deals with suppliers. For example, a company might reinvent and reorganise its overall supply chain (logistics, procurement, and management) and identify areas where it can negotiate better pricing or terms with suppliers.
Improving Productivity & Efficiency
Improving productivity and efficiency can also play a critical role in growing margins. A full review of existing processes and ways of operating will identify opportunities to improve productivity, reduce waste, and streamline processes, ultimately leading to higher efficiency. Additionally, providing ongoing assessments and training to both leadership and employees will enhance organisational performance and help companies stay up to date with the latest industry trends and best practices, allowing them to stay ahead of the competition and increase their overall margins.
Price Increases
Another way to grow margins is through the increase and alignment of prices. This can be a tricky proposition, especially in a market where sales are flat or declining. However, with careful planning and execution, it is possible to implement price increases in a way that will not negatively impact sales. For example, a company might target its most profitable products or services for price increases, or it might introduce new, higher-priced products to supplement its existing offerings. Additionally, the company can also consider adjusting its pricing strategy based on the time of year, competition, and other market conditions.
In many instances, targeted pricing actions are often a company's primary method of defence. And whilst we acknowledge that such actions can be effective in some cases, organisations must also utilise other strategies to sustainably increase margins in the medium to long term.
Diversification
Diversification can also help a company grow margins by reducing dependence on a single product or market. This can be achieved by expanding into new markets, developing new products or services, or acquiring complementary businesses. By diversifying its offerings, a company can reduce its overall risk and increase its resilience to changes in market demand. Moreover, diversification can also open up new revenue streams and increase overall profitability.
Optimising Sales & Marketing Efforts
Optimising sales and marketing efforts so they are geared toward delivering your value proposition through commercial excellence can also play a significant role in growing margins. Companies can enhance their sales processes through improved utilisation and control over their existing systems e.g. CRM, that will result in a more focused sales and marketing push. Additionally, companies can improve their sales margins by focusing on upselling and cross-selling existing customers, rather than solely relying on acquiring new customers. By optimising their sales and marketing efforts, companies can increase their sales volume and generate higher profits.
Investing In R&D
Finally, investing in research and development (R&D) can help companies grow margins by developing new, innovative products and services whilst shortening the time from idea to market. By investing in R&D, companies can create new products that differentiate them from their competitors and attract new customers. Additionally, companies can also improve their existing products and services, leading to higher customer satisfaction and increased sales.
In conclusion, growing margins in times of flat or declining sales is a common challenge faced by many companies. However, by utilising a combination of the strategies outlined above, companies can increase their profitability and achieve their long-term business goals. By focusing on cost-cutting, price increases, diversification, optimising sales and marketing efforts, improving productivity and efficiency, and investing in R&D, companies can increase their overall margins and ensure their long-term success.
It is also worth noting, that in many organisations where demand is higher than current capacity of supply, the same approach can be taken to become more efficient in handling growth.
For more information on how we can accelerate growth within your organisation, contact stephan.orth@slg.consulting.
*Technology is a great enabler but not the great saviour that many organisations still view it as. We at SLG, having over 30 years of experience at various successful corporations, strongly believe that every organisation has to focus on reviewing existing tools, methodologies, and technical platforms.
