Unfortunately, it appears to be a knee-jerk reaction. As revenues decline, business owners have a propensity to shave margins and lower prices to get the job. Why? What possible good result will occur from this common strategy?

All that really results when you do this is more strain on your business, more difficulty in supporting your overhead. What’s the point? Many tell me they do it to keep their employees working. Well, that may appear to be a good reason until you are forced out of business for any number of other reasons, all stemming from a lack of adequate profitability. Business failure puts everyone, yourself included, out of work.

Business owners tenaciously hold onto the idea that their gross revenue is the most important goal and are willing to sacrifice profit for revenue. A basic error. It is profit that is king, not gross revenue.

Here is the key to your success: Better you should reduce your revenue, reduce your overhead, reduce your payroll and maintain profitability. This is a winning concept. Reduction of profit to get the job just to keep your employees busy or to satisfy your perceived need for maintaining gross revenue is a short path to self-destruction.

The important point is to balance your overhead with current revenue projections. If your revenue is down, presumably you need fewer employees, not more low-margin business to keep them busy. Less of everything. You must stop holding onto your old business model and force profitability by downsizing and performing only profitable work. Buying contracts by squeezing profits out of them and then not paying bills, taxes or paying yourself is not the way. You’re better off becoming a smaller company, yet a more profitable company. Working to keep your employees busy will not result in anything productive. While painful, you must reduce your payroll and work profitably.

Stop squeezing profit margins to get the job. Lose the job, downsize and maintain profitability.