The biggest loss in a business does not sit in its expenses. It sits in the gap between what the business could bring in and what it actually brings in, which is why a month spent cutting costs usually works on the small side of the problem.
What it really costs you to produce
The source uses a term for this: costing. In plain words, costing is how much it costs you to produce a given amount of what you sell. It applies to a whole organization, to one department, and to the job of a single person.
For someone who is self-employed, that number is nearly always higher than it looks. The reason is simple. People count the materials, and they forget the time, the driving, the phone calls, the fixes and the quote that went out and never closed.
Suppose an installer charges $450 for a job and sets $150 of materials against it. On paper he keeps $300. In practice the job takes four hours, another hour goes on the road, and half an hour of calls comes before any of it.
Now suppose the same installer does the sum to the end. He puts a value on his own hour and adds the driving. Of the five kinds of job he offers, two turn out to be losing money, and he stops offering them.
Your cost also depends on how much you work
This is the observation that is hardest to reach alone. The source says real costing has to take into account the capacity of the activity, meaning how much it should produce when it runs properly. A plant working at half its capacity, while still paying for every worker and every expense, turns out a product that costs it double.
In a small business it looks like this. The rent, the insurance and the vehicle stay the same whether you do five jobs a month or fifteen. What changes is how many jobs they are spread across, and between those two months the true price of every job shifts threefold.
Suppose a studio owner pays $4,000 in fixed costs every month. When she has four projects that month, each one carries $1,000 of it. When she has ten, each one carries $400. Same studio, same work, and a completely different cost.
That also explains the opposite mistake. Suppose a garage owner lowers his prices because there is no work. The number of jobs goes up a little, the price goes down more, and at the end of the month he makes less than before.
Asking what something costs you means nothing until you know how many jobs a month it is spread across.
The gap is the loss
The source puts the sentence that turns the whole subject around in very few words: one knows that “more profit can be lost than ever could be saved on expense.”
Then it puts figures on it. An organization that could bring in $50,000 and brings in only $20,000 is losing $30,000 every week.
Notice what it says here, and what it does not say. It does not say the business lost money it had. It says the gap between what the business could do and what it does is itself the loss.
So it becomes clear why someone who spends a whole month cutting $1,500 of expenses, while his gap stands at $30,000, is working on the small side of the equation. Every dollar he saves is real. He is simply working on the wrong line.
Why a weak month does not start with cuts
The source sets out the order plainly. Pushing income up matters more than saving through restrictions, and economy comes after promotion. Promotion, in the source's language, is everything that brings inquiries and clients to the business, such as advertising and marketing.
In practice, when a month is weak, the marketing is usually the first thing to go. And that is also why the month after it turns out weaker still.
Suppose a business owner cancels a $95 monthly software subscription and, while he is at it, stops advertising. By the end of the year he has saved $1,140, and he has lost four clients.
The opposite is a consultant going through a weak month who leaves the advertising budget as it is and touches everything else. The month after it is her best of the year.
The difference between them is not how much money they saved. It is which side of the equation each of them chose to work on.
This chapter has two short exercises in the booklet, one called calculate and one called divide.
Before you delete another line from your card statement, ask how much your business could bring in and how much it does. That is where the big loss sits, and not on the line you are about to delete.
The booklet is general knowledge, not financial advice for your business.