On Business Optimization

If you're trying to sell a big cost-saving project to senior managers, then you are likely to be competing against a lot of other big projects, including sales and marketing and new product development projects. Chances are that you're going to need to sell your project to people who don't necessarily have the background to understand the technical details and the benefits of your project. And if they don't understand it then you are going to have a difficult time selling it.

So it can help to present your project's cost-saving numbers in terms of the equivalent increase in sales that your company would need to achieve the same bottom-line result.

Why?

Because increasing sales is hard and expensive – and every manager knows it. Framing your cost-saving project in terms of sales numbers that everybody understands can help you sell it across technical and non-technical departments and get it included in the project portfolio. 

There are three basic strategies to increase profits in a company: increasing the number of units sold, increasing the marginal profit from each unit sold, or cutting costs. Allocating resources to maximize profits from these three often-competing strategies is one of a manager's greatest challenges. By stating your cost-savings in terms of sales numbers, you're helping your management make a direct comparison between investing in your cost-saving project and investing in projects for increasing sales.

Therefore, you'll want to know both the equivalent increase in the number of units and the percentage that increase represents. For example, instead of just saying "this project will save us $5 - $7 million over the next five years," you should say "this project will save us $5 – 7 million over the next 5 years, which is equivalent to a 5 - 7% increase in sales above forecast or 1 million additional units of our best selling widget."

If investing in your cost-cutting project can add more cash to your company's bottom-line than investing the same amount to increase sales, then you have a very strong case for your project. If it doesn't add more cash, all other things being equal, then the money would probably be better invested in increasing sales.

 

 

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