Cost Cutting Does Not Lead To Profitability

from the very-interesting dept

Here’s something I’ve suspected for a while, but hadn’t seen discussed anywhere. A new study shows that with all these dot com companies cutting costs to try to reach profitability they may be getting the opposite results instead. Costs are there for a reason. It’s fine to try to cut unreasonable or excessive costs, but you have to spend some money to make some money. In many cases, it seems, the cost cutting ends up hurting sales as well, making it even more difficult to achieve profitability. That’s why there’s two sides to the cost-benefit equation… I think in the last few years people tended to only look at the “benefit” side, and now people are only looking at the “cost” side. Both views are very short-sighted. A successful business understands both the costs and the benefits of their operations. That’s what capital budgeting is supposed to be all about.

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Comments on “Cost Cutting Does Not Lead To Profitability”

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Bob Meier says:

Somewhat Accurate

Wal-Mart’s success is based almost ENTIRELY on cost control and cost cutting.

Cost cutting CAN be an effective way to improve profits, but not when you don’t understand what your costs are. Don’t interpret this study as “Cost cutting is ineffective for boosting .com profits.” Instead, interpret it as “.com companies, like most software companies, have no idea how they spend their money.”

Cathryn Mataga (user link) says:

String out the remaining dollars

I suspect, with the dying dot-coms, the reason
for cutting costs is to string out the remaining
capitol as long as possible before the end
inevitably comes. That is so the upper-
management can take in a few extra months at
their big salaries. Gives them time to look
for new jobs also. The company, and the other
employees don’t count.

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