The companies with the highest customer loyalty also have the highest … It costs more than you think to hire an employee, especially one with in-demand skills or specialized knowledge. Unnecessary business spending doesn’t only take the form of trendy marketing gimmicks, excessive travel expenses, and outrageous client-nurturing projects. Collectively, location costs play a decisive role in sorting the former from the latter. It’s simple, transparent and you can get signed up in just five minutes. Likewise, if you’re buying 10 or 20 desks or laptops at once, you’ll likely qualify for a volume discount – but you have to ask. 1. Thousands of years ago, the global economy (such as it was) depended on bartering. Some people are better at time management than others. Should you need such advice, consult a licensed financial or tax advisor. Not all economies are created equal. Cost cutting may be implemented as a long term controlled strategy. For instance, swap the wet bar in your office kitchen for a weekly happy hour where employees pay their own way, and ditch the company-wide theater outings for optional excursions to free or low-cost attractions in your city. Therefore, lowering their values is considered one of the best business cost reduction strategy examples. Our last article explored the methods to strategically cut costs in the often-overlooked realm of intangible assets. All Rights Reserved. Here are ten ways you can reduce your business costs and improve your bottom line. Founder and Chairman, Palo Alto Software, Inc. Summary. There are limits to what (and how much) you can barter, but it’s worth looking into these arrangements if cash is extremely tight or you think your products or services make valuable trades. As a business owner, you're always looking for ways to cut material costs, and optimize your resources. What are you doing to cut your company’s expenses and grow its bottom line?window.googletag = window.googletag || {cmd: []}; In restaurants and light industrial facilities that don’t run overnight, power off machinery and appliances not required for safety or storage – in other words, turn off the oven, not the freezer. If chronic procrastination is a problem at your office, figure out why it’s happening and take appropriate steps to address it – for example, by breaking overwhelming tasks into chunks. This is because these costs account for 5% to 50% of the total landed cost of the product, which includes the purchase price, freight, insurance, warehousing, customs duties, and other costs. 3 Strategies to Consider for Strategic Cost Cutting 3 Strategies to Consider for Strategic Cost Cutting. Unfortunately, it’s also getting more expensive each year. The following are common types of cost reduction. Saving money and cutting costs as a small business can be tricky—if you’re a startup in the early stages especially, money might be tight already. Alternatively, cost cutting can be a sudden and urgent activity driven by changing financial conditions, prices, costs and competition. Define whether the costs involved in terminating contracts are really worth it. Still, it’s virtually certain that your business ledgers contain at least some financial fat to trim. Costs are divided between fixed costs, those that do not depend on the quantity produced by the company, and variable costs, those that fluctuate according to production (raw material purchase, machine wear, fuel costs for deliveries, etc.). As the old saying goes, you have to spend money to make money. googletag.pubads().enableSingleRequest(); Even small changes in your facility’s ambient temperature can adversely impact your customers’ comfort and employees’ productivity, threatening your top and bottom lines. Download free online forms instead of buying them at office supply stores. Business consultants generally agree that most companies can cut administrative expenses up to 10% without affecting their efficiency. 13 Best Cash-Back Credit Cards – Reviews & Comparison, 7 Best Low APR Interest Credit Cards – Reviews & Comparison, 18 Best Travel Rewards Credit Cards – Reviews & Comparison, 15 Best Hotel Rewards Credit Cards – Reviews & Comparison, 11 Best Gas Credit Cards – Reviews & Comparison, 12 Best Credit Cards for College Students – Reviews & Comparison, 22 Best Small Business Credit Cards – Reviews & Comparison, 10 Best Secured Credit Cards to Rebuild Credit – Reviews & Comparison. It’s no use improving your earnings and having excellent sales strategies if your costs are also increasing. One must understand that costs and expenses are different concepts. Here are some strategies to consider, from Deloitte’s “Mining spotlight on sliding productivity and spiraling costs.” Use that to your advantage by shopping around for essential services – or simply threatening to shop around at the right time. But, beware! Salaried employees expect employers to provide for their healthcare needs, and it’s probably the right thing to do anyway. If it is not possible to change, at least put pressure on them, indicating that you already make some purchases with their competitors and that you need a reduction in prices, a longer term, a bonus on products etc., or you will be forced to change suppliers. In larger facilities, you’ll need multi-zone thermostats or multiple thermostats to handle climate control needs on different floors or suites. If moving isn’t an option, you need to understand your location costs, identify acceptable ranges for each major line item, and learn how to tweak the numbers in your favor: When it comes to buying supplies, inventory, and equipment, there’s strength in numbers. Organic social media conversation is but one form of word-of-mouth marketing, a cost-effective and potentially powerful form of outreach that essentially outsources part of your marketing department to your customers. Offer catalogs and brochures as pdf downloads to cut printing and shipping costs. “We expect companies will continue to evaluate their human capital programs and associated costs for managing people on a regular basis,” Altman added. So why not buy gently used items when it makes sense to do so? So the first step before putting any cost reduction strategy example into practice is simply this: to deeply understand the cost management of your business. In a white-collar office, personal computer workstations comprise the single biggest nonessential energy suck, so make sure everyone powers theirs down before heading out. Cutting out that $10 to $15 monthly maintenance fee, and then bagging $200 to $300 in free money simply for opening a new account, sounds like a pretty good deal. Tax-advantaged health savings accounts (described in more detail by the IRS here) are especially useful: They empower employees to take ownership of their healthcare choices while shifting risk (and cost) away from the employer. Do I really know the costs of my business? When cost cutting in existing functions is appropriate, companies should explore both radical approaches to restructuring and more traditional tactics, as our recent work with a professional-services firm shows. Having slow-moving stock leads to financial losses, since the goods take up space and can even spoil over time. Entrepreneurs tend to look out for each other, and simply mentioning that you own a business is often enough to get a discount. For instance, when outfitting your new commercial suite or home office, ask the interior decorator if they offer discounts or bonuses for new client referrals. It’s important not to over-rely on freelancers and contractors, as they’re likely to be less loyal and may have other relationships that distract from their work for your company. That works out to about $112,000 per 30-second spot, on average. Do you know the first steps for how to reduce expenses in business? (Click on the player to hear the narration to our post about Cost Reduction Strategies! Managing logistics and supply chain costs is particularly important for companies engaged in international trade. Which margin is the most relevant to your needs?Intuit argues tha… While most entrepreneurs focus on increasing sales, lowering expenses is equally important when trying to achieve or maintain profitability. According to Bloomberg, 8 out of 10 small businesses fail within the first 18 months. Conversely, if you’re routinely exceeding the limits of a lower-capacity plan, you could be paying a lot to run over those limits – for instance, some cellular carriers charge $10 or $15 per gigabyte for data overages. References to products, offers, and rates from third party sites often change. Could it have negative consequences? Freelancers and independent contractors are easier to hire and cheaper to keep employed than traditional employees, provided you have an enforceable freelance contract to set expectations and mitigate risk on both sides of the relationship. The analysis of processes allows you to detect delays, bottlenecks and waste and, thus, reduce some costs in the company, among other things.I. Before singling out easily distracted or apparently inefficient employees for coaching or discipline, implement scalable systems that hold everyone accountable, such as time-tracking requirements (with the requisite software programs) and benchmark time-frames for standardized task completion. Many businesses reduce recurring costs by pooling resources with other small businesses in their trade areas, or with like-minded companies across wider geographies. Studies suggest that telecommuting allowances and other types of flexible work arrangements have positive implications for employee morale and job satisfaction, both of which are positively correlated with productivity. Together, employees can put into practice various ways to save money, either by switching off unused devices, digitizing documents, etc. Investment Expense Tax Deduction - Which Fees Can You Deduct? © 2020 Money Crashers, LLC. Such simple, almost banal and low-investment measures can have a significant effect. But for one-off projects and ongoing, non-core activities, they can serve as the secret sauce that keeps your company’s labor costs under control. This is the case even if you don’t leverage a small business alliance or network such as American Express OPEN. To help keep your profits up, you need to control expenditures. Pro tips: Did you know your business has a credit score that differs from your personal credit score? So when it comes to reducing costs, that seems to be one of the main considerations of every business. Even at $49 per month, you’re looking at less than $600 per year – likely lower than the per-employee cost of a single business trip. Costs are associated with the delivery of goods and final products, such as the acquisition or production of goods, raw materials, labor, electricity, machinery depreciation, taxes, among other things. As long as you pay your balance in full each month and only use your card for purchases that you would have made anyway, you’ll come out ahead. You will notice that the first business cost reduction strategy examples on our list are quite intuitive, but even so, study the impact of these reductions on the quality of the processes involved. Here are a few suggestions: Try selling leftover cardboard, paper and metal instead of sending it to the recycling center. Do the math and compare which option will be most advantageous. But it can sometimes take years for that return to materialize. The important thing is to inform them so that goals are shared and become easier to achieve. As companies refocus on becoming lowest-quartile cost producers, they will need to move away from reactionary cost cutting and towards sustainable cost management programs. That’s partly because profit margins come in multiple flavors and are often presented in overly complex ways. If you devote time and personnel to engaging your company’s fans and building your social following organically, you can reach thousands of current or prospective customers without spending a dime. Expenses are those expenditures necessary for a company to continue to function, ie, administration salaries, advertising, marketing, etc. Some cliché perks, like foosball tables and beanbag chairs in common areas, are affordable in the long run, but arguably amount to window dressing. In cases of dismissal, it’s very important to do a detailed analysis in each case. MoneyCrashers.com does not include all banks, credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. How many legacy technologies do you see? And they’re not as expensive as you’d think: GoToMeeting‘s costliest plan, which supports up to 100 users, costs $49 per month, and there’s a free version for small teams. That means wasted time is wasted money. Tim Berry. In some industries, cost per unit falls on a quarterly basis and firms must continually find cost reductions to remain competitive. The goal cannot be merely to meet a bottom-line target. Be sure to review the options available from multiple suppliers. Before we present some cost reduction strategy examples for companies, it is worth remembering that all of them should only be done after analyzing the processes to which they relate. Cost cutting always sends a message to customers, employees, or both. With this in mind, it makes sense to do everything in your power to retain talented employees, even if it requires you to spend a bit more on salaries and benefits. If you have a larger facility, you’ll need to invest in commercial climate control systems from companies such as 75F, which are significantly more expensive (though potentially even more cost-effective). Study the expenses related to logistics and freight, which may increase the price that seemed attractive at first. Energy-sipping appliances, insulation, and small-scale renewable energy project often do. These accounts usually have quite significant values and are also essential. Depending on what your company does, your used buys might include: Many vendors offer small but meaningful discounts to clients that pay invoices ahead of schedule. Burning platform for a rethink of strategy and cost Regulation Increased capital requirements, compliance costs and intrusive scrutiny of conduct Customer expectations Demanding consumers with higher expectations of service and value. Smart thermostat technology remains relatively new, but its promise is tremendous: Once installed, it learns your climate control preferences, gauges your building’s energy profile, and automatically adjusts itself to maintain a comfortable temperature as efficiently as possible. Programmable and smart thermostats from companies like Honeywell can cut your climate control costs without compromising comfort. “Cost optimization strategies should look beyond cost-cutting and proactively promote options for immediate efficiency gains while not compromising on long-term impact on business performance..” Read more: Gartner Top 3 Priorities for HR Leaders in 2020 Stipulate monthly, half-yearly, yearly goals or the period that best fits your situation, but avoid acting without having done a lot of analysis and research on your business and the goals you want to achieve. Finally, if your company needs to reduce costs, let your team know about this need. Every dollar that you invest in your business has a rate of return. This will help at reducing dumpster cost. googletag.enableServices(); Cost saving strategies are a necessity, but before beginning, it is necessary to map processes and gather reliable information so you can make cuts without harming the company’s operations. In many industries, notably software, competition for talent is fierce. In this article, we’re going to focus on more hiding-in-plain-sight cost-reduction ideas. Online accounting software like Intuit Quickbooks is a great way to track your revenue and expenses, giving you insight into your business’s profit margin. Specifically, we’ll explore three drains on business value that you can start plugging today. Look around your facility. Which margin is the most relevant to your needs? It might be the fault of poor communication systems or outmoded project management practices. As you implement the strategies to cut business costs , monitor their effects to ensure that customer relations are not adversely affected, nor that costs increase in non-administrative areas a result of the cuts. These are two fixed costs (depending on the branch of the company) that are essential for any business to function today. Sure, there’s no substitute for team-building at industry conventions, professional meetups, or annual parties. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors. cutting expenses to ensure your business can sustain competitive relevance and maximise its potential. Get the suppliers involved in the cost-cutting strategy. Like reducing energy and water usage, cutting down paper waste is good for your company’s bottom line and the environment. For millions of employers, telecommuting has tremendous cost-cutting potential. It is imperative to study in advance if the company will have financial conditions to deal with the new negotiated conditions. If you need to reduce costs in your company, Corporate Performance Management software like STRATWs One can be of great help, including engaging your employees in lowering operating costs. In the service industry, the drag from legacy systems isn’t always as clear-cut, but that doesn’t mean it’s not real. Cutting costs vs. cutting corners. But that doesn’t mean you need to travel for every client meeting or satellite office check-in. 5 Things You Need to Start a Small Business, 13 Places to Buy Cheap Discount Sports Tickets Online & Off, 7 Types of Common Craigslist Scams to Watch Out for, Use secure electronic file exchange services such as, Tighten margins and shrink fonts on printed reports, Inform vendors and other sources of postal mail when employees no longer work for your company, Take your company’s name off direct mailing lists wherever legally and practically possible, Reducing utility costs through lower electricity and water usage, Reducing the amount of space required to house employees in a central location (for instance, by replacing dedicated desks with collaborative workstations that home-based employees can use when they visit the office), Reducing time lost to commuting and travel, Office technology, such as printers and copiers, Personal technology, such as refurbished smartphones, tablets, and laptops, Vehicles, such as delivery vans and company cars, Storage equipment, such as liquid vats and bins. Expenses are arguably the easiest of the three: While you can’t force your customers to spend more of their hard-earned money, you can trim unnecessary costs. When combined with high-deductible health insurance plans that cover catastrophic expenses, they may serve as suitable replacements for traditional health insurance plans whose generosity often comes at a substantial cost to employees and employers alike. Also give preference to corporate plans, which are more economical options. Are you paying fees on your business checking account? Every business is different. Are your calls more long-distance or local?) Limiting company-paid travel is an even better deal for your business. And, if the role does not match a routine business activity, hiring outsourced employees may be a better option. Cost Reduction techniques involve strategies to uplift the company and help the company to grow while cost-cutting involves strategies necessary to survive Cost Reduction is carried out as an expansion strategy or growth strategy while Cost Cutting is … Analyze and determine which products aren’t selling and decrease their production. This is a painfully straightforward way to reduce your company’s electricity bill without affecting its operations. Judicious use of small business credit cards notwithstanding, debt is generally your enemy. But what is your ideal profit margin?Many business owners have no idea what their profitability should be. Given the competitive pressures that companies face today, many are seeking to cut costs and improve margins. No strategy should be put into practice before going through strategic planning tools. On the other hand, if you’ve dramatically cut your paper usage in recent years, maybe it doesn’t make sense to buy hundreds of reams at a time to get a slightly better per-unit rate – especially if you don’t have a ready place to store it all. According to Ad Age, a prime-time broadcast TV commercial’s average cost per 1,000 impressions (CPM, meaning the cost to serve the ad to 1,000 viewers) was $24.76 in 2014. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others. That’s partly because profit margins come in multiple flavors and are often presented in overly complex ways. Even if you think you’ve plucked all the low-hanging fruit, it may be worth your while to take another look. It won’t cost you anything and it could produce a significant payoff in time. If you haven’t already started, use software that helps you control inventory. Everything in moderation. Shut off overhead and desk lights too, or leave instructions for building cleaning crews to do so when they’re done. However, anyone who’s made the mistake of purchasing the biggest tub of peanut butter at the warehouse club, only to throw it away two years later without making so much as a dent, has firsthand experience with the pitfalls of bulk buying. 5 ways to continue to cut costs and maintain presence. If you’re locked in a fierce battle to attract and retain talent, it’s probably better to offer higher starting pay, juicier performance bonuses, and better benefits packages (particularly healthcare and retirement accounts). Many business owners have no idea what their profitability should be.
2020 cost cutting strategies for companies