cost cutting strategies for companies

The analysis of processes allows you to detect delays, bottlenecks and waste and, thus, reduce some costs in the company, among other things. Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers.com receives compensation. According to Bloomberg, 8 out of 10 small businesses fail within the first 18 months. So when it comes to reducing costs, that seems to be one of the main considerations of every business. 1. The following are common types of cost reduction. Others aren’t so nice. Therefore, it is very important to know some cost reduction strategy examples that can be applied in your business. But it can sometimes take years for that return to materialize. Many insurance companies offer hefty discounts or bonuses to customers who make the leap from competitors. But what is your ideal profit margin?Many business owners have no idea what their profitability should be. Having slow-moving stock leads to financial losses, since the goods take up space and can even spoil over time. Also scan documents and make use of collaborative online sharing tools such as Google Drive, Dropbox, or OneDrive. It might be the fault of poor communication systems or outmoded project management practices. 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. Some people are better at time management than others. 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. googletag.enableServices(); In many industries, notably software, competition for talent is fierce. … Cost cutting always sends a message to customers, employees, or both. According to Global Workplace Analytics, 50% of the U.S. workforce holds a “telework-compatible job” and 80% to 90% of workers want to be able to telecommute at least some of the time – but only 20% to 25% telecommute at all. If the competitor has a major cost lead, then consider either making a major cost leap past this company or developing another market initiative such as a niche positioning. It costs more than you think to hire an employee, especially one with in-demand skills or specialized knowledge. As the old saying goes, you have to spend money to make money. Programmable and smart thermostats from companies like Honeywell can cut your climate control costs without compromising comfort. Expenses are those expenditures necessary for a company to continue to function, ie, administration salaries, advertising, marketing, etc. Do you know the first steps for how to reduce expenses in business? Unfortunately, that potential remains largely untapped. googletag.pubads().setTargeting('subcat', []).setTargeting('category', ['savings']); Many business owners have no idea what their profitability should be. We’ve compiled a list of money-saving tips—ways for you to trim overhead here, and increase efficiency there, until your business is on its way to better financial health. For millions of employers, telecommuting has tremendous cost-cutting potential. This is the case even if you don’t leverage a small business alliance or network such as American Express OPEN. “At this point, it appears most companies are attempting to use layoffs and workforce reductions as a means of last resort. You aren’t expected to provide freelancers with health insurance benefits, pre-tax retirement accounts, family leave or paid time off, or other pricey benefits. Energy-sipping appliances, insulation, and small-scale renewable energy project often do. 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). Why not pay yourself to wait? Managing logistics and supply chain costs is particularly important for companies engaged in international trade. So only hire someone if the position is really essential at the moment. Try to renegotiate possible rates and fees with your creditors and banks. Keep in mind that some cash back credit cards and travel credit cards carry annual fees, but you can offset those (and then some) with moderate to heavy use. 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. The companies with the highest customer loyalty also have the highest … 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. Tim Berry. Judicious use of small business credit cards notwithstanding, debt is generally your enemy. 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. 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. 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. Depending on your company’s size and function, you can consider: Unless it’s clearly spelled out in a binding contract, every listed price is negotiable. That’s partly because profit margins come in multiple flavors and are often presented in overly complex ways. And the trend may accelerate: In a survey cited by CCIM, U.S. executives revealed plans to shrink their footprints to less than 100 square feet of dedicated office space per worker by 2018. 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. Every business is different. 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. Is your business in need of cost cutting to ride out a tough time? That’s down more than 20% from the beginning of the century. 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. At minimum, you should review these plans once per year to determine whether they’re adequate for your needs. Business consultants generally agree that most companies can cut administrative expenses up to 10% without affecting their efficiency. Time is money. 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. 3 Strategies to Consider for Strategic Cost Cutting 3 Strategies to Consider for Strategic Cost Cutting. No strategy should be put into practice before going through strategic planning tools. You just need to pay them for completed work. With Nav you can monitor your business’s financial health and make changes when needed. 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. For example, you can’t limit travel expenses if your duties don’t require you to travel, and you can’t downsize your office space if you’re working out of a home office. 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. Unfortunately, cost-cutting without organizational change won’t create a lasting cost advantage. 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. Your company’s ideal word-of-mouth marketing strategy or strategies will depend on its audience’s demographic makeup, buying habits, and response to messaging and sales efforts. And once you and your team get in the habit of following through, it’s painfully easy too. To boost morale and build camaraderie, substitute expensive perks for cheaper, social ones. Procrastination isn’t a catch-all culprit for office productivity woes. We may have financial relationships with some of the companies mentioned on this website. 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. If it keeps a high-potential worker in the fold for an extra year, upping that $75,000 salary to $85,000 is a bargain. Get the suppliers involved in the cost-cutting strategy. However, retail smart thermostats are appropriate only for homes and small commercial spaces. 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. Everything in moderation. Even small changes in your facility’s ambient temperature can adversely impact your customers’ comfort and employees’ productivity, threatening your top and bottom lines. Paid social media advertising is much cheaper. The important thing is to inform them so that goals are shared and become easier to achieve. Salaried employees expect employers to provide for their healthcare needs, and it’s probably the right thing to do anyway. Some cities and states are wonderful places to start and grow a business. And carry out appropriate research plans. That means wasted time is wasted money. In some cases, there’s an active quid pro quo at work – often referral or bulk discounts. Ditto for your landline phone service – a cloud-based phone system from a company like RingCentral is likely cheaper and more reliable than its Ma Bell-era predecessor. Procrastination can be as innocuous as stopping by a coworker’s desk for a brief, non-work-related chat, or as problematic as ducking out of the office for hours at a time to run personal errands. Online accounting software like Freshbooks is a great way to track your revenue and expenses, giving you insight into your business’s profit margin. The best way to reduce high location costs is to relocate to a lower-cost region, but that’s not always practical or even possible, especially if you’re an independent professional with deep family roots in your current backyard. 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. Thousands of years ago, the global economy (such as it was) depended on bartering. Therefore, lowering their values is considered one of the best business cost reduction strategy examples. It’s no use improving your earnings and having excellent sales strategies if your costs are also increasing. Allowing your employees to telecommute reduces their transportation costs, keeping more money in their pockets – and yours, through lower utility costs and, potentially, smaller annual raises. Nowhere in your company bylaws does it say that you must buy only shiny new equipment. How many legacy technologies do you see? 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. 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. The digital revolution has given rise to a committed cottage industry of barter facilitators such as Business Barter Unlimited and U-Exchange Business. Let us know how you like this content in the comments!). You can still use technology in your favor: you can opt for connections through applications like WhatsApp, Skype  or Viber. Even if you think you’ve plucked all the low-hanging fruit, it may be worth your while to take another look. This is doubly true in a low-interest environment, where the cost of short-term borrowing to bridge any shortfall is unlikely to exceed the value of the discount. Cost cutting is the process of reducing spending. Such simple, almost banal and low-investment measures can have a significant effect. 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. What impact would the reduction of each of them have on our activities? In this article, we’re going to focus on more hiding-in-plain-sight cost-reduction ideas. 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. Here are a few suggestions: Try selling leftover cardboard, paper and metal instead of sending it to the recycling center. 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. What are you doing to cut your company’s expenses and grow its bottom line?window.googletag = window.googletag || {cmd: []}; That’s partly because profit margins come in multiple flavors and are often presented in overly complex ways. It is imperative to study in advance if the company will have financial conditions to deal with the new negotiated conditions. 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. To help keep your profits up, you need to control expenditures. }); See why 218,388 people subscribe to our newsletter. Use that to your advantage by shopping around for essential services – or simply threatening to shop around at the right time. To adopt any of these business cost reduction strategy examples, making a plan is paramount. But that doesn’t mean you need to travel for every client meeting or satellite office check-in. The best-run companies, in contrast, think of cost management as a way to support their strategy, and of cost as precious investment that will fuel their growth. Pro tip: If you’re thinking about adding a health savings account (HSA) look into Lively. 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. Which margin is the most relevant to your needs?Intuit argues tha… 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. But taking a price cut is only a short term solution. Cost Reduction Strategies and Examples of Cost Cutting with Lean Methods. So why not buy gently used items when it makes sense to do so? As a business owner, you're always looking for ways to cut material costs, and optimize your resources. Intuit argues that small business owners should pay most attention to net profit margin, “calculated by taking the company’s total sales for a given time period, subtracting total expenses, and then dividing that figure by total revenue.” Net margin illuminates sales and revenue trends, helping you uncover weaknesses that aren’t apparent from top-line numbers. According to the Center for American Progress, replacing a typical employee (not executives or physicians) costs about 20% of the employee’s annual salary. 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. Make use of cost control software to ensure more work in … 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. Collectively, location costs play a decisive role in sorting the former from the latter. “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 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. Investment Expense Tax Deduction - Which Fees Can You Deduct? I’ll show you 26 straightforward ways to cut costs and increase the success of your small business. 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. Variables that affect net profit margin can be controlled – or at least influenced – by business owners. 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.). Here’s a look at some easy ways to expand your small business’s net profit margin by reducing common expenses – without hampering mission-critical activities or crippling your company’s ability to grow. 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. 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 … Traditional advertising is expensive – really expensive. 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