But simply cutting spending without a long-term view in mind can have damaging effects long term. While a handful of industries are flourishing during the COVID-19 pandemic, far more companies are fighting for survival. And as the slow months drag on, forward-thinking enterprises are finding answers in technology solutions. Our POV paper explores why you need a long-term strategy, rather than relying on aggressive cost-cutting measures in the short term.
Even by cutting services and choosing the provider with the lowest hourly rates, you’re still not maximizing your savings—and could potentially be neglecting important maintenance. Our specialized teams work closely with CFOs and finance leaders on defining the vision for their finance function and developing the strategy and roadmap to achieve transformational change. Contact us to discuss your objectives and optimize your cost strategy. – From utility bills to monthly rent, many of your overhead costs are likely to be linked to your physical office. Remote working is increasingly popular, and by shifting to a remote-first work culture , you can shred your overheads and put your business in a great position moving forward. Next, divide the overhead costs by the total labor cost, which tells you the net cost of an employee to your business.
– It’s important to review all your overhead costs and mark off items that are too expensive, open to efficiencies, or unnecessary. Once you’ve identified an overhead cost that can be reduced, such as a license you no longer need but are continuing to pay for, you can take steps to eliminate it. Typically containing 80% of suppliers but only 20% of spend, it’s tempting to ignore tail spend, but it adds up. With the help of procurement software, the visibility of tail spend can be improved, analytics applied, risks mitigated, and significant savings uncovered. The ultimate savings guide outlining 15 of the most efficient ways procurement professionals can reduce costs, add value, and make an impact.
Some Cost Reduction Strategies That Your Business Can Employ
It’s now more important than ever to be performing regular audits on all aspects of your business to look for gaps in productivity. 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. Cost Reduction Strategies 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. 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.
You should be able to see anywhere between 9 – 15% in cost reduction by following these simple strategies. The number is just a recommendation based on what we have seen in our experience. For example, you can reduce the cost by cutting headcounts but what happens when the business picks up again? You need to then hire those resources again and the cost comes back to https://globalcloudteam.com/ you. Headcount reduction as well as cutting discretionary spend is of course measures which can deliver immediate results but they also have a significant downside if they are purely done for short term gains. 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.
And for many businesses, the number one reason for this shift is the cost benefit that comes with moving data to the cloud. Our best expert advice on how to grow your business — from attracting new customers to keeping existing customers happy and having the capital to do it. GrowOur best expert advice on how to grow your business — from attracting new customers to keeping existing customers happy and having the capital to do it. The long term impact for you is the reduction of real estate costs. Work from home in our view refers to the flexibility the company offers to employees so that they can work from home once a week or more.
The following strategies cost next to nothing and offer a significant pay-off over time, so use these key points to ensure the continued profitability of your business and augment your cost reduction efforts. Take a look at where you spend resources on the off chance that certain events might arise. If they were to occur, would they be embarrassing but not very costly? If you’ve answered yes to either question, you’re probably wasting those resources.
- For occasional in-person meetings, you can create small huddle rooms which the teams can use that when they are in office.
- – It’s important to review all your overhead costs and mark off items that are too expensive, open to efficiencies, or unnecessary.
- The idea is to offer this as a perk so that employees can have better work/life balance.
- However, not all perks programs have to be lavish and expensive.
- While this was the go-to solution in the old days, it does quickly take a toll on your funds.
- They can even set up and maintain your website to ensure that you have a strong online presence.
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. It must be embedded in the business, with sponsorship from the C-suite and lines of business. This guide will walk you through Una’s top 15 cost reduction strategies in procurement and how you can implement them within your own organization, and offer up supporting content to help you move the needle. For retailers experiencing significant sales online, it might make sense to go online completely.
Moving From Hourly Rates To A Total Cost Approach
It shares surveys indicating three-quarters of banking APIs are for internal purposes and that number will double by 2025. Apparently budget is easier to get when the ROI is based on savings. That new product launch with a strategic partner has no similar proven ROI and so lingers until competition forces action. Only Shopify unifies your sales channels and gives you all the tools you need to manage your business, market to customers, and sell everywhere in one place.
So reach out to your vendors and see if they are willing to suspend the services for 3-6 months. For example, you are going through a tough time and don’t have a use for such a service. If the contract is not required at all and the vendor allows you to terminate the contract for convenience, without charge, then go ahead and cancel the service. Now if you don’t have a contract management system you likely are not going to have all the contacts in one single place. Termination charges – Whether you have to pay a fee to terminate the contract. Some vendors might allow you to terminate the contract but you have to pay a fee for it.
Avoid a wrongful termination suit by keeping the promises you made in your contract—specifically relating to business travel opportunities, paid training, and agreed working hours. Payroll accounts for about 50% of a company’s monthly expenses. This can place a heavy strain on small businesses that don’t have a regular stream of customers yet. When paying employees becomes too expensive, many companies either lay people off or keep their workers but reduce salaries.
Sharpening negotiation skills and building trust with suppliers can make it easier to reduce costs in the supply chain. Both large and small businesses stand to benefit from cost reduction strategies. These strategies allow them to counter high operating costs that don’t add revenue or value to the organization. Companies that execute their strategies well can increase profits dramatically. As simple as this seems, businesses are often hesitant to curb annual and performance-based pay increases for employees.
Deep analysis of factors like risk, dependencies, business impact, timing and outcomes play an important role in providing appropriate recommendations and a clear path to kickoff. Our rapid assessment approach is aimed to accelerate implementation initiatives within a matter of days or weeks depending on scope and individual needs. The investments organizations make in digital transformation can help reduce cost now, while providing a framework for speed, cost efficiency and organizational change to remain ahead of the curve. The investments organizations make in digital transformation can help reduce cost now, while providing a framework for speed, efficiency and organizational change to remain ahead of the curve. Without a robust forecasting process supported by automation and technology, a business lacks the ability to quickly react to change.
Ways To Quickly Reduce It Costs
The IT support costs are generally priced based on the number of calls expected and the number of hardware points the provider needs to support. So you should ask the vendor for cost reduction since they are not incurring a cost to service the printers. One of the first things which happen in uncertain times is hiring freeze. If you have training services for new hires or certifications and so on, then it would make sense to review those and see if you still need them. You probably don’t want to cancel the services altogether but want to suspend the service. There might be cases where you have a contract but you can live by without those services in the short term.
These costs add up fast and you may end up spending a lot more than you anticipated. However, you can use the last 12 months’ data to understand areas where you can reduce cost and change controls to curtain the spending. If your business slows down and you have reduced staffing needs, then that is going to influence the variables that determine the cost of the service. If you have outsourced your IT support (most of the small and medium-sized businesses do), then this might be another area to look for cost reduction. Since everything moving to Cloud nowadays it’s not inconceivable that companies are spending a lot of money on software subscriptions. In the short-term, you should look at reducing your discretionary spend by reducing the usage of services.
While this cost reduction strategy works for multiple industries, manufacturers stand to benefit the most. Any business owner knows that materials account for a sizable amount of the budget. Companies should find ways to obtain inventory at lower costs. An alternative approach is to manufacture goods with fewer materials.
Eliminate Duplicated Analysis
You will find that the ideas improve each time you do this, because you will see new possibilities and discover the limitations of your earlier ideas. In most cases, a single neutral department can be assigned the entire analytical task. Do you prepare long reports with comprehensive data when only exceptions matter or when the true consequences of variances are quite small? Do you prepare reports that cover short periods of time or are delivered in real time, when longer periods or slower reporting would meet the need just as well? What was worse, a senior executive’s assistant recognized that the reports were no longer useful, so she had stopped giving them to her boss. And since she had no knowledge of the effort required to create them, she had not notified the reports’ originators.
— Sense Corp Energy (@SenseCorpEnergy) April 28, 2015
(Obviously, you should start with the least valuable ones.) While final decisions will require the input of other departments, you can draw up a list of possibilities. Determine which programs involve an unusual amount of work to support a portion of the company that is unprofitable or less profitable than the company average. Many departments conduct similar activities or purchase the same items independently, on a small scale.
Audit Expenses And Cut The Unnecessary Ones
Take a department with 125 frontline workers, 25 first-level supervisors, and five second-level supervisors. But if you reduced the supervisory ranks by the same percentage, thus keeping the average span of control at five, your savings would go up by nearly half, to 20%. Overhead that increases the effectiveness of your direct activities should be evaluated against a strict cost/benefit standard. Simply ask whether the measurable improvement in effectiveness pays for itself. You can also rank each overhead item from most effective to least and draw the cutoff at the point you consider acceptable. This same standard should be applied to many activities not traditionally recognized as overhead.
The other alternative for this is to create certain cubicles that can be only be used by these employees. The big question though is do they still the allocated space in the office. The other alternative is not to move the teams permanently to work from home but offer the flexibility to work from home a few days a week. For occasional in-person meetings, you can create small huddle rooms which the teams can use that when they are in office. If you do a lot of inhouse software development then that team can work remotely.
The study found that an expert’s performance dips when switching companies and that “stars” who were successful at one company tend to fade out when they move to another organization. In addition, hiring an outsider to fix internal issues can decrease the morale of existing employees, resulting in a decline in group performance. But not all items that land in expense reports are blatantly over-the-top. In fact, some of the biggest company expenses start off as cost-cutting measures.
Reducing your operational hours reinforces the importance of your ecommerce website. You don’t want to turn potential customers away and force them to come back later. Have a way for shoppers to purchase the item they would have done in-store with a sign on the door that points them to your website. Think about reducing your operational hours to drive down these costs. For example, instead of opening seven days a week, close on Mondays—the day historically proven to be physical retail’s least busy day. To be ready for lunch break shoppers, instead of hanging around and serving the odd shopper that pops in by chance early in the morning.
Cost-conscious culture, employees treat every dollar of company money as if it were their own. This means they will seek the best value for their money, look for better deals, and consider whether or not a purchase is really necessary. Build a cost-conscious culture by winning management support for cultural change and through ongoing training, starting with new employee onboarding. Email receipts to your customer instead of giving them a flimsy piece of paper they’ll inevitably lose. You’ll cut printing costs and collect important customer information—data you can use in email marketing campaigns to nudge shoppers back to your store, recommending products similar to previous purchases. Reduce operational costs such as light, rent, and heating with a smaller store, showcasing just a handful of core items.
We also found that finance functions often face a lack of interest in understanding cost drivers. They also struggle with poorly defined roles and responsibilities, as well as considerable focus on reporting activities at the expense of driving strategic initiatives. Addressing these challenges lies at the root of allowing the finance function to add value to strategic cost management for any company. The generation of ideas is not only vital in managing costs, but also in the improving revenue and synergies.
If the product/service is required, you still can reach out to vendors and see if they can help you with short term cost reduction in lieu of a longer-term commitment. The next strategy is to review the discretionary spend so that you can identify areas where spending can be curtailed in the short term. All businesses have employees that are less productive than others. 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.