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A lot of the points in this article are good, but I don't agree with the Cost vs Revenue section. There are often a _lot_ of benefits that come with higher sal

by larrik 9y ago

A lot of the points in this article are good, but I don't agree with the Cost vs Revenue section. There are often a _lot_ of benefits that come with higher sales beyond simply revenue. For instance, you may reach a higher order threshold with your supplier, unlocking better pricing across the board. Or you may show better growth, attracting investors or other momentum. There are definitely customers where cost is more important than revenue, which in my experience are companies "run by the accountants". In my years of consulting and being inside growing and dying businesses, I see there's 2 main drivers of a company: sales, or the accountants. One focuses on growing at any expense, the other focuses on cutting costs and minimizing risk. They aren't generally compatible, but they both have their place. Some company heads focus on one or the other, and some can balance it. There's no way that you can claim cost savings are more valuable than increased revenue, it's just too complex.

lpolovets 9y ago
(I'm the post's author.) This is another great perspective on how not every dollar is equal: unlocking better pricing as your volume increases. When I wrote this, I was especially thinking about low-margin industries like grocery stores. For a high-margin industry (e.g. 75% margins), it doesn't really matter if you save the customer $1k or help them earn an additional $1k. Those are roughly the same to them in terms of money added to the bottom line. But if the customer's margins are more like 2% or 5%, then the difference between $1k in cost and revenue is much more dramatic to them.
- cher88 9y ago
  Another scenario where gaining an incremental dollar of revenue may be more valuable than saving an incremental dollar of cost: optics for fundraising. A startup with $500k revenue and $600k cost would probably find it easier to raise funds than a startup with $100k revenue and $200k cost.
  - maxxxxx 9y ago
    It's also easier to optimize business processes when there is some volume. Optimizing 10% of a $10 million process is real money where doing this with a $100k process is often not worth the effort.
  - lpolovets 9y ago
    That's a great point.
siddharthdeswal 9y ago
Could you please add details about when you agree with Cost vs Revenue section, and when you don't... that'll throw more light on your actual position. Or do you absolutely disagree with the Cost vs Revenue section?

by larrik 9y ago

lpolovets 9y ago

(I'm the post's author.) This is another great perspective on how not every dollar is equal: unlocking better pricing as your volume increases. When I wrote this, I was especially thinking about low-margin industries like grocery stores. For a high-margin industry (e.g. 75% margins), it doesn't really matter if you save the customer $1k or help them earn an additional $1k. Those are roughly the same to them in terms of money added to the bottom line. But if the customer's margins are more like 2% or 5%, then the difference between $1k in cost and revenue is much more dramatic to them.

cher88 9y ago
Another scenario where gaining an incremental dollar of revenue may be more valuable than saving an incremental dollar of cost: optics for fundraising. A startup with $500k revenue and $600k cost would probably find it easier to raise funds than a startup with $100k revenue and $200k cost.
- maxxxxx 9y ago
  It's also easier to optimize business processes when there is some volume. Optimizing 10% of a $10 million process is real money where doing this with a $100k process is often not worth the effort.
- lpolovets 9y ago
  That's a great point.

siddharthdeswal 9y ago

Could you please add details about when you agree with Cost vs Revenue section, and when you don't... that'll throw more light on your actual position. Or do you absolutely disagree with the Cost vs Revenue section?