Looking to reduce costs, but don’t know where to start? Here are 7 cost reduction strategies to help your business cut down spending.
Cost Reduction Strategies
1. Focus on Profitability:
The first place you should start looking for potential cost reductions is in your profit margin. You should determine which products/services are most profitable for your organization, and eliminate those that are not. Focusing on your top performing products/services will not only help in reducing costs, it will help to hone your business goals.
2. Track Spend:
In order to improve or reduce how your company is spending money, you need to identify where it is going. By tracking all business related expenses, you will be able to easily identify areas in which spending can be reduced or even eliminated. Some categories for consideration include:
- Standard Expenses – Standard expenses includes common operating costs such as utilities, office space, and telecommunications.
- Geography – If your organization operates or services multiple geographic areas, determine which locations are performing up to par and which ones are not pulling their weight/
- Production – Production expenses include any and all costs related to a specific division, service or product. This can include purchasing, delivery, production, etc.
3. Improve Processes & Productivity:
In line with production, you should look to see how processes and procedures can be improved. Increasing the efficiency of your internal operations can result in reduced costs and an improved product/service. Consider, for example, how electronic document management can reduce labor costs, eliminate costly storage, and streamline several processes through automation (AP, HR, etc.).
4. Correct Financial Errors:
The financial center of your organization is a great place to find savings. Investigate any billing errors, AP/AR process issues, and even discounted payments. As we mentioned above, automating your processes is a great way to increase efficiency…and your AP department is no exception.
While many cost reduction strategies aim to eliminate waste, not all strategies are the same. In this case, telecommuting may be a way for you to reduce business expenses. Allowing your employees to work from home will allow you to potentially reduce rent, utilities, etc.
When you can’t use remote work, consider using interns. Whether they work remotely or onsite, working with an internship program can provide you a cheaper alternative to hiring temps.
7. Energy Efficiency:
Going green has its advantages, and cost savings is one of them. By using energy efficient appliances and reducing paper use, your organization can realize additional savings and even tax breaks.