As a business owner, reducing costs while maximizing revenue in your business is always front of mind. Your ability to do this, and the strategies available to you will vary by industry. There are, however, several effective strategies that business owners can investigate to achieve cost reduction.
From capitalized cost reduction to staffing adjustments, and tweaks to your supply chain, we’ve put together a round-up of the top 10 cost reduction strategies for your business.
1. Cut Office Space Costs
As a business owner, you no doubt already know how much rent and associated office space costs can eat into your bottom line. The good news is, there are ways to reduce this and make it more manageable. Depending on the type and size of your business, here are a few options to consider.
Encouraging work from home days
The rise of flexible work arrangements is not only good news for employees but also something that can help business owners save on office space costs. If your business is nearing capacity in your current office, rather than spend more on an office redesign or a move to a bigger space, consider implementing a work from home policy. Many companies globally implement this idea with high levels of success. By encouraging (or failing that, requiring) your team members to work from home one or several days each week, you can operate your business from a smaller space and save on rent.
Depending on your business type, switching to a mobile or home office model could be a great solution to help you reduce office space costs. If you are a business that spends a significant amount of time visiting clients or otherwise offsite, why not bite the bullet and do away with your premises altogether? While there are many factors to consider when making this change, the cost savings may well make it a worthwhile move for your business.
2. Eliminate Unnecessary Meetings
Everyone knows the pain and frustration of an unnecessary meeting. All those hours spent twiddling your thumbs and going round and round in circles that could be put to better use driving revenue. It is definitely beneficial to bring the team together, whether it is in-person or on a call. However, meetings can often prove to be a serious waste of time and a lost opportunity for your business.
Recent stats suggest that upper management – the most likely to get tied up in lengthy meetings – can spend up to 20% of their working hours stuck in meetings. That’s one entire working day that isn’t being devoted to managing teams, attracting new business, and all the other tasks that keep your business humming. Here are some alternatives to regular meetings.
These days there is an almost endless number of software platforms that enable you to communicate information to your team. With this in mind, consider whether it’s possible to push a weekly progress meeting to bi-weekly, opting to send a team-wide update out on the alternate weeks. Not only will this save time in your business, but it will also ensure the meetings you do have are productive.
Keep it small
Rather than cramming everyone in your business into the conference room, why not keep the meeting to one person from each department who can then return and relay the information back to the rest of their team? Not only are meetings with fewer people almost always quicker and more efficient, but they ensure that your business doesn’t grind to a halt.
3. Reduce Staffing Costs
Regardless of the unique situation in your business, there are likely significant cost savings to be made with your team. Here are a few useful strategies you should consider to bring your staffing costs down.
Unpaid time off
Whether your business is cyclical or you happen to find yourself facing an unforeseen quiet period, encouraging employees to take unpaid time off is an effective way to bring down your staffing costs and also maximize your team’s efficiency. While not all employees will be in a position to take unpaid leave, it’s worth making this offer to older team members more likely to take advantage. While there are lots of different ways to approach this, many businesses see success by offering all employees the opportunity to “buy” extra leave in addition to paid annual leave that your business provides. By doing so, your employees will feel valued and free to take that extended vacation they have their eye on. You will also be able to save on your employee expenses.
Terminate underperforming staff
It’s very common for business owners to refrain from firing staff who are underperforming. There are a whole host of reasons your business may neglect firing underperforming staff. This could be because the boss develops a friendship with an employee, or because the boss worries about the impact the termination would have on the rest of the team.
It may seem like you are doing your employee a favor; however, it’s important to consider long term impacts not just for the individual in question, but for your business as well. Not only will they have an impact on your bottom line and potentially reduce the performance of those around them, but failure to act on your part may also make it more difficult for the team member to find comparable work down the line when they do move on.
Remove middle management
While these roles are undoubtedly essential in some business types, if you take a good hard look at your business, you will likely find that some cost savings can be made in excessive layers of management. It’s been estimated that up to 20% of the costs of any given department are taken up by supervision and management. These costs can be justified if supervision is necessary. For example, in the circumstance that the workload in the department has changed or increased. If this is not the case, however, excessive supervision may actually be a hindrance to your employees.
4. Redistribute Tasks
Whether this is necessary because of terminations, restructuring, or increased workload, redistributing tasks is an excellent way to ensure all employees are working to their potential.
All businesses have employees that are less productive than others. Whether they are busying themselves with non-revenue earning tasks (e.g., workplace social committees and volunteer efforts) or genuinely slacking off, taking the time to assess each team member’s workload and redistribute tasks is a smart move for all businesses.
5. Keep An Eye On Supply Costs
While it’s easy to overlook everyday expenses like office supplies, groceries, and other business essentials, these have the potential to add up and really impact your business’s bottom line. If you operate a business of scale or even purchase a significant amount of products from one supplier, it’s worth asking for a better deal or shopping around to see if there are savings to be made.
Aside from flat out asking, there are a few alternatives to get a discount from your suppliers. If your business is on the small side, consider teaming up on your ordering with a similar business in your area to get a bulk discount. Nicknamed co-opetition, this tactic is increasingly common in the food and beverage industry and can be a great way to develop relationships with your competitors.
It’s also worth mentioning that in order to give your business the best chance of getting a discount from your suppliers, it pays to be prompt. Always ensure you pay invoices on time and do everything you can to be a good customer.
Want to think a little outside the box to save some cash in your business? Consider using your skill set to trade or barter with other businesses in your area. Say you are social media savvy entrepreneur who needs an electrician to put the finishing touches on your new office space? Why not reach out to local tradespeople and offer to create some content or optimize their social media profiles in exchange for the work that you need? While some businesses will be more receptive to this than others, when done right, this type of business to business skill exchange can be a win for everyone involved. If you’re looking for somewhere to start, check out Craigslist or the classifieds in your area for a “free swap” section or similar.
7. Minimize Pay Increases
As simple as this seems, businesses are often hesitant to curb annual and performance-based pay increases for employees. Before doling out raises for your team, check in with your HR department to get an idea of where your team’s compensation is sitting in relation to the industry standard. If you are already paying the industry rate or better, this is an easy place to make savings in your business.
While it’s true that holding out on raises can cause a change in staff morale, money isn’t the only way to motivate your team! Consider rewarding staff with things like additional time off, paid lunches, or better perks at work to keep them interested.
8. Examine Internal Processes
In an increasingly digital world business processes are changing at the speed of light. With all this change it is sometimes difficult for every department in a business, especially businesses of scale, to keep up. Depending on the size of your business, the introduction of software and automation tools may have resulted in a double-up in certain aspects of your team’s workload.
Say your business had recently implemented an AI-powered reporting tool to help pull and crunch company data for end-of-month reporting. Not all departments, however, understood the news of the system or filtered it down. In this situation, employees in the business would likely continue to manually pull data as normal to prepare for reporting time, completely unaware that the new software had already done the work for them.
This is just one example of how everyday lapses in communication can limit the productivity increases brought on by new developments. It’s now more important than ever to be performing regular audits on all aspects of your business to look for gaps in productivity.
Timing, as they say, is everything. This is no different in your business. It’s more than likely that certain tasks, e.g., ordering, reporting, answering emails, can be performed more efficiently, and save your business time and money. Many businesses operate on a simple “first-in, first-out” basis with their workload; however, this isn’t always the best. Examine the major tasks in your business and see if they can be completed more efficiently.
10. Go Cloud-Based
Depending on the age and industry of your business, it’s possible to utilize a significant on-premise IT setup. While this is still necessary for some industries that deal with ultra-sensitive data, the majority of businesses can achieve IT cost reduction by migrating their data to the cloud. This will help your business save on the cost of purchasing, running, and maintaining expensive servers. But what’s even better is that it will free up a great deal of space in your premises. This space can instead be used to house more staff or otherwise be dedicated to increasing revenue. Another benefit of cloud-based IT setups is their flexibility, allowing your business to scale your data usage up or down based on your requirements. It’s a win-win!
When you are looking to achieve business cost reduction, there are lots of things to consider. It’s easy as a business owner to go for the low hanging fruit that will deliver the biggest impact in the shortest amount of time. It’s important, however, to consider the impact of those decisions, not only on your team and your customers, but the long term impact your decisions will have on the business as a whole.
Effective cost reduction is not only possible, but it can also work to improve your business in a number of ways that will pay dividends for years to come.