There are 2 parts to developing a stronger bottom line – increasing revenue and controlling costs. If I started a business selling $20 bills for $19, I’d have no problem raising revenue but my hang up would be the controlling costs aspect. As a firm we’ve experienced double digit revenue growth for 3 of the past 4 years. If we weren’t able to control our costs, we’d have a hard time keeping the lights on despite the increased revenue. This just goes to show that, while increased revenue is important, it’s not the be-all, end-all.
If a retailer purchases a larger amount of product in an effort to get a lower price (volume discount), thinking it’s going to sell out but isn’t able to move the product, they were able to control their cost but not increase the revenue. It’s definitely a fine balance oftentimes needing to factor in costs that are taken for granted (i.e. delivery costs, commissions to be paid).
The same analysis can work when contemplating job offers. Let’s say Joe is working 15 mins from his house getting paid $100,000. He’s then offered a job in NYC making 50% more bringing his new salary to $150,000. No brainer, right? Wrong! The additional $50,000 might be worth 75% of that ($37,500) after you factor in the increased taxes. Also, the commuting costs will eat into that additional $50k pretty quickly. Commuting also creates a lot of incidental expenses. With all of the walking that occurs in NYC, Joe will need new shoes more often than he would if he stayed close to home. His dry cleaning bill will also be higher and more frequent as he is subject to the conditions traveling within “The City.” I’m not saying it’s a no-go either; just not as clear-cut as one might think. Another example of having to control your costs.