Cost reduction strategy example: start by analyzing your processes
It’s no use improving your earnings and having excellent sales strategies if your costs are also increasing. In times of economic crisis , ways to reduce business costs becomes even more necessary – which can lead to desperate and not always effective measures.
Therefore, it is very important to know some cost reduction strategy examples that can be applied in your business.
Do you know the first steps for how to reduce expenses in business?
Why is cost reduction important in a business?
The growth of an organization depends not only on how much it generates with its products or services, but also how much it spends.
A company can sell a lot and please its customers, but if its costs exceed (or are too close) to the amounts collected, it will not grow.
So when it comes to reducing costs, that seems to be one of the main considerations of every business. But it is not enough to just start making cuts without adequate planning.
First of all, you should ask yourself:
- Do I really know the costs of my business?
- What impact would the reduction of each of them have on our activities?
- Could it have negative consequences? Or positive?
- Which sectors will be affected and how?
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.
After all, it will not do any good trying to reduce costs in activities that will not have any impact, or even modifying processes that result in the decline of the quality of your products.
After all, what are costs?
One must understand that costs and expenses are different concepts.
Expenses are those expenditures necessary for a company to continue to function, ie, administration salaries, advertising, marketing, etc.
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.
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.).
Analyze your processes
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.
The analysis of processes allows you to detect delays, bottlenecks and waste and, thus, reduce some costs in the company, among other things.I
10 Business cost reduction strategy examples
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.
1- Telephone and internet
These are two fixed costs (depending on the branch of the company) that are essential for any business to function today.
So you may have asked yourself before: Is it possible to spend less on these options? The answer is yes! You need to analyze your requirements (what internet speed do you need? Are your calls more long-distance or local?) And carry out appropriate research plans.
Be sure to review the options available from multiple suppliers. Also give preference to corporate plans, which are more economical options.
You can still use technology in your favor: you can opt for connections through applications like WhatsApp, Skype or Viber. But be careful that these alternatives do not make your internet much more expensive.
Do the math and compare which option will be most advantageous.
2- Water and energy bills
These accounts usually have quite significant values and are also essential. Therefore, lowering their values is considered one of the best business cost reduction strategy examples.
It is possible to reduce costs by investing in cheaper taps and outlets, replacing incandescent lamps with LEDs or fluorescents, as well as turning off unused devices such as printers and monitors (avoid leaving them on standby) or even installing sensors that activate light only when there is someone in the environment.
Such simple, almost banal and low-investment measures can have a significant effect.
3- Paper and printing
Even with the diminishing use of paper, there are still documents that sometimes need to be printed.
In such cases, print using both sides of the sheet, which will save paper. Also scan documents and make use of collaborative online sharing tools such as Google Drive, Dropbox, or OneDrive.
4- Bank rates and fees
Try to renegotiate possible rates and fees with your creditors and banks. This may be an alternative to lowering interest rates.
But, beware! It is imperative to study in advance if the company will have financial conditions to deal with the new negotiated conditions.
Analyze and determine which products aren’t selling and decrease their production. Having slow-moving stock leads to financial losses, since the goods take up space and can even spoil over time.
If you haven’t already started, use software that helps you control inventory.
6- Switching suppliers
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.
To adopt any of these business cost reduction strategy examples, making a plan is paramount.
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.
No strategy should be put into practice before going through strategic planning tools.
8- Hiring and termination of employees
The two processes generate costs for the company: expenses with training, onboarding the new employee and labor rights to consider for dismissals.
So only hire someone if the position is really essential at the moment. And, if the role does not match a routine business activity, hiring outsourced employees may be a better option.
In cases of dismissal, it’s very important to do a detailed analysis in each case. Define whether the costs involved in terminating contracts are really worth it.
Also, consider the time a new employee will take to be trained or how you will reconfigure the team in the absence of an employee.
9- Reduce logistics and freight costs
When comparing suppliers, do not only account for the value of the goods. Study the expenses related to logistics and freight, which may increase the price that seemed attractive at first.
10- Team help
Finally, if your company needs to reduce costs, let your team know about this need. Together, employees can put into practice various ways to save money, either by switching off unused devices, digitizing documents, etc.
The important thing is to inform them so that goals are shared and become easier to achieve.
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.
Revolutionize the management of your company with STRATWs One