Business growth: Convert expenses to revenue
Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
While the thought of converting expenses to revenue seems counter intuitive, it is more than possible in the business climate of today. Many well known companies have already done it and more are in the process. Firms are turning expenses into revenue streams, irrespective of whether they are in manufacturing, services, or distribution.
The Ford Motor Company did it. Amazon did it. Your business can do it too.
Historically, Henry Ford helped set the stage for optimizing the use of goods and services in building cars at the turn of the 20th century. His approach was very direct, yet effective. Ford would state specific packaging requirements to his suppliers for the shipment of automotive parts in wooden skids, crates, bins, etc. When the parts were received, they would be unpacked and used for the production of a car.
According to Jeff Haden of Inc. magazine, once all of the parts were gone, Ford would use the wood from the packaging to help build out some of the wooden parts of the automobile including the seats, dashboard, floorboards, and doors. Then, as part of his ultimate, yet optimal usage of items he had already paid for, Ford would turn right around and use the wood scraps and chips to make charcoal for outdoor grilling.
Amazon, in many respects, is the Ford Motor Company of today, when it comes to the optimization of expenses. Haden goes on to say “Amazon turned the cost of running a massive data center into Amazon Web Services, a business that generated $88 billion in 2023. Amazon offsets at least some of its order fulfillment infrastructure costs by charging third-party sellers through Fulfillment by Amazon.”
Beyond those examples, Amazon continues in its’ quest to create additional revenue streams by marketing quick delivery of their products using Amazon Prime for a small fee. Using Prime, helps offset some of their costs for delivery. Further, Amazon uses their Amazon Payment Systems to process payments, in lieu of using outside payment processors.
Many retailers of today like Walmart, Uber, Walgreen’s, Lowe’s, and especially Amazon, actually sell ad space on their sites. If a business wants prime ad space they pay more for it, versus a less than optimal location for not as much money. The key objective for all of these companies is to monetize what they have to offer in any way they are able. Any business or service that uses websites has many revenue opportunities to consider.
While some companies are unable to turn a cost center or an expense into a revenue stream, anyone can view their sources of revenue from new perspectives. Then coupled with some creative thinking, develop other means to improve their profitability.
Create a new revenue stream. Investigate whether there are means by which you can monetize a regular service you perform into a seminar based offering. Consider developing an on-line course that could be sold to clients that would meet a need. Turn a technical development into a digital product. If there is some unique feature your company has developed that could possibly benefit others in your industry or even another industry, without reducing your competitive advantage.
Leverage unused assets. If there are assets available that are not always in use, consider renting or leasing them.
Analyze your current revenue streams. Instead of looking at your total gross revenue, break it down into multiple sources of revenue. Those sources could be viewed by major product/service lines, large/medium/small clients or customers, as just a few examples. Determine if more of your time is being spent on one source versus another source. Make an attempt to determine your gross margins for your various revenue streams. Consider doing a deep dive into analyzing your margins by each client or customer.
To calculate your margins for various revenue sources, determine your revenue, then apply your direct costs (labor and/or material costs) for that revenue source. The difference will be your gross margin. Then compare those margins across the various revenue sources for that group. Based on the results, for example, by customer/client, you can quickly see who is more profitable and who is not, allowing you to put more effort into your more profitable customer, and/or pursue other means of increasing your gross margin for clients who are less profitable.
Take a step back and let your thoughtful creativity lead you to a new area of revenue and corresponding growth for your company.