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Comment by philwelch | Hacker News Reader

> If you are looking for consulting contracts that pay really well, focus on providing a service that helps companies make money rather than save money. In other words, help grow revenues rather than reduce expenses – people pay much more for that.

But decreasing costs by $1 is mathematically the same as increasing revenue by $1--it increases profitability by $1. Which means any process or mentality that prefers one to another is biased in a bad, purely self-destructive way.

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The problem is that reducing costs doesn't typically scale. If you want to grow a businesses profit significantly, you need to increase sales. It's entirely reasonable to double your sales. It's pretty difficult to halve your costs.

In order to double the profits you need to either double the sales or eliminate all costs.

Or do a mix of both. Doubling sales multiple times is more likely than making profits on your infrastructure... Amazon AWS is probably the exception here.

How much you need to reduce costs, in order to double your profit, is dependent upon your current costs and revenue. So you don't necessarily need to eliminate all costs to double profit.

Suppose you purchase widgets from a manufacturer for 100$ and sell them for 101$. In that case, 101$(revenue per widget) - 100$(cost per widget) = 1$(profit per widget). Suppose you then change manufacturers and reduce your cost per widget to 99$. You now make 2$ profit per widget. By reducing costs by 1%, you doubled your profits. Much easier than doubling your sales.

In theory, yes, but if you have a profitable business with a 1% margin by definition it already has to be absolutely giant (e.g. Amazon) to be making money. And to reduce costs at this scale is harder than increasing sales.

It's about the psychology. One thing I've learned from consulting gigs etc is that clients are irrational and you have to learn to deal with it. If you can do the same amount of work but get more kudos for it, why waste energy on the low-rewards activities (i.e. saving money rather than "making money").

So you're right from a programmer's perspective, and about the unhealthy bias. But most people don't think like that.

Except there is a limit to how much you can reduce costs, not to how much you can increase revenue.

It depends on how you add $1 to revenue. If you do that by increasing prices, you are right. If you add $1 by extra sales, you have to take the cost of delivering the service/product to the client into account, and there is often a marginal element to that. In other words, your cost base is not totally fixed. So some of that dollar is eaten up in delivering the service

It's not the same because you will pay slightly more tax on that $1 going up, and slightly less tax on reducing your costs.

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