When your business is thriving, you probably don’t think too much about your costs. We don’t really attempt to fix things that aren’t broken now do we? But the business landscape has its peaks and troughs and there are times when financial conditions take a turn for the worse or there is weakening in customer sentiment. At times such as these, business costs become the primary concern for you and you want to look for ways to effectively reduce costs in your business.
If you delve a little deeper into the problem, you will notice that the problem generally lies with costs, not prices; sometimes, they drop drastically and that can wield a heavy blow if your business is already in trouble.
For example, axing your R&D or marketing could reduce your business’ turnover as well as your market share even more. And no matter what measures you take, you find that your business cost is always very high. Here we discuss some reasons why your business costs are much higher than your rivals and what you can do to lower them:
#1 The amount of products you produce
The economies of scale have a very important role to play in this aspect. If your business is relatively small or if you are just a start-up, you might be manufacturing larger quantities of your product. This increases the per-unit fixed costs. You can ramp-up production and increase the total number of units you produce, which will bring down your per-unit fixed costs. These two factors are inversely proportional.
#2 Overall cost disadvantage
Your rivals might have much lower costs than you because they may have some influence over their suppliers of raw materials. Apart from this, they may have lower local taxes, and could be taking advantage of lower wages and cheaper infrastructure. You too can attempt to lower costs by looking for suppliers that provide you raw materials at lower costs against bulk orders or commitment or regular orders. You can also consider moving to premises with a lower rent.
#3 An excessively-diverse cost structure
In case your cost structure is excessively complex, you likely also have very complex corporate overheads to manage it, and you may be paying much more than its worth. If you simplify your cost structure, you might be able to bring down your corporate overheads and save your business some money and quite a few hassles as well.
#4 An inefficient organisational structure or management style
If you rely heavily on resources that may be costing you far more than the value these bring to your business. However, if you streamline your work processes or move it to lower management lines, that may just help you cut management costs.
#5 Operational inefficiencies
In most instances, high costs are related to:
- Poor production planning
- Inefficient productivity
- Lack of or poor maintenance
- Unfavourable terms of trade
- Poor allocation of resources such as marketing, sales production, R&D, etc.
- Dated office systems and procedures
Regular analysis, delegation and streamlining all your business processes can help reduce your production costs.
#6 Unfavourable government rules and regulations
In some instances, your higher costs can be attributed to certain factors that are entirely outside of your control such as taxation, regulations in different jurisdictions, foreign exchanges and more.
In these cases there isn’t much you can do about these aspects and you just have to accept that your rivals’ costs in these particular areas will always be far lower; and you have to look for ways to reduce costs in some other avenues.
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
