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Double Your Profits

Double Your Profits

Bob Fifer
1994
T3 244 pages ยท about 4h 4m to read OL8603883Wgoodreads

Cost discipline handbook widely used by buyout and turnaround operators

Summary

Fifer ran a consulting firm specialising in cost reduction and wrote this as seventy-eight short rules for raising profit quickly. It is aggressive, prescriptive and deliberately uncomfortable, and it has circulated among private equity operators and founders for decades.

The organising distinction is between strategic and non-strategic costs. Strategic costs are those that directly generate revenue or competitive advantage, and Fifer argues these should be increased, not cut. Non-strategic costs are everything else, and he argues they should be attacked without regard to what is reasonable. His methods for the second category include setting budgets at a fraction of last year's spending and requiring justification for any increase rather than any decrease, refusing to approve any expenditure that does not have a named revenue consequence, demanding that suppliers cut prices immediately with a credible threat to leave, and paying invoices late as a matter of policy.

On revenue he argues for pricing at what the customer will pay rather than at cost plus margin, for firing unprofitable customers, and for concentrating sales effort on the accounts that produce most of the profit.

The management style he recommends is confrontational, and he is explicit that the person doing this will be disliked. Several of the tactics, particularly the supplier payment and negotiation methods, damage relationships in ways that carry costs he does not account for. The book has no evidence base beyond his consulting record, and readers should treat it as one aggressive approach to cost that works in specific situations rather than as general management advice.

Key takeaways 7

  1. Costs divide into strategic ones that generate revenue and non-strategic ones that do not, and the two should be managed in opposite directions.
  2. Budgets should be set as a fraction of last year's spending with justification required for any increase, which reverses the default of incremental approval.
  3. Any expenditure that cannot be tied to a named revenue consequence should be eliminated rather than reduced.
  4. Suppliers will cut prices substantially when asked directly with a credible alternative, and most companies never ask.
  5. Prices should be set at what the customer will pay rather than derived from cost, and most companies underprice because they start from cost.
  6. Unprofitable customers should be fired, since serving them consumes the capacity that profitable customers require.
  7. Cost reduction executed slowly and consensually does not happen, so the decisions must be made quickly and imposed.

Who should read it

Operators taking over an underperforming business who want an aggressive playbook for cost and pricing, used with judgement about the relationship costs.

Where it sits in the reference 3

Business themes
Business themes
Business themes

Who recommended it 1

Jamie Dimonreported
Jamie Dimon's reading list for JPMorgan interns

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