Cost reduction can be an excellent way to improve your business’ profitability. Introducing various well-planned cost-control measures can bring in tangible savings and it also ensures that this profitability is sustainable. However, for that to happen, it’s important that the cost-control measures are very carefully managed.
Eliminating all excessive expenses is definitely beneficial. But sometimes, indiscriminate cost cutting could also lead to a dip in quality. It can also result in poor employee morale if they aren’t given the tools needed to complete their job efficiently, or if they fear becoming redundant within your organisation.
This particular risk is significantly reduced by identifying areas where you can safely reduce costs; setting very clear-cut cost reduction targets & researching various effective cost-saving initiatives before embarking on incorporating changes in your business’ workings.
#1 Planning cost-control right
The very first step towards cost reduction is identifying what your major cost centres are, which are likely to include:
- Sales and marketing
- Facilities maintenance
Start by carefully perusing and assessing your profit and loss statement for the past six months; rank all your business expenses in descending order, working your way down that list and then minutely identifying areas where it is possible to reduce costs.
It’s also a good idea to focus first on identifying the cost-saving measures in avenues where you’ll see the most significant returns. For instance, it’s better to work toward saving 10% on a $500,000 expense rather than slightly higher percentages on lower-cost expenses.
#2 Be bold and experiment with new ideas
You may find it difficult to anticipate any savings without first implementing new processes and business systems. Keep in view that the changes you incorporate don’t have to be permanent. If you aren’t certain whether a particular cost-saving measure will work for your business, you should just trial it for a certain period of time and assess the results. This becomes the best way to get an idea of how much you are able to save and you don’t have to be concerned about having to commit to these new process or changes on a long-term basis.
The new systems and processes that you try should first be benchmarked and you should make it a point to revisit them frequently to ensure they continue to be viable for your business. If you aren’t too sure about potential changes, consider seeking some professional advice from a business mentor, an accountant, or even an industry association.
#3 Quick and significant savings
Not many business owners realise this, but it’s possible to cut costs without making any drastic changes; some of the things you can do include:
- Begin with eliminating unnecessary expenses such as heating costs, utilities charges and focus on waste reduction.
- Reduce inefficiency in your business by identifying which manual tasks can be completed less frequently or computerised.
- Avoid small, more frequent orders that cost far more compared to larger orders and take more time to complete.
- Reduce your travel expenses by opting for cheaper accommodation on your business trips; book air travel earlier as well for lower rates and better discounts.
- Revise your company’s credit polices to encourage prompt payments.
- Negotiate discounts or lower payment terms on purchased goods and products.
- Find better alternatives to your existing high-priced suppliers.
You should also have quick brainstorming sessions with your staff members as they too may have certain suggestions that you might have overlooked and which can be useful to you. For effective and sustainable cost reduction strategies & efficiencies that will increase your bottom line, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.
Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777