From the course: Finance Strategies for Business Leaders
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Growing revenue vs. cost leadership
From the course: Finance Strategies for Business Leaders
Growing revenue vs. cost leadership
- There are two ways to increase the profitability of a company: sell more or spend less. Obviously, the best solution is to do both at the same time, but that doesn't happen very often. What happens in most companies is that during boom years, the financial priority is on boosting sales. In boom years, companies may let their travel and expense accounts balloon, or they may hire lots of extra people. Things are good and sales can be made, so that's the push. This is how finance leaders make hay when the sun shines. That means that they get the business when it's there to be had. But increasing sales isn't the only way to boost profitability. After all, profits are revenues minus expenses, and you can focus on reducing your expenses to also boost profitability. This approach is called cost leadership, but it's not strictly cost cutting. Cost leadership is focusing on making sure that costs are cut to be in line with…
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