Cost-saving ideas for companies
Cost-saving is an effective way of raising money through techniques such as; re-negotiation with suppliers for better prices, re-allocation of funds to priority areas, eliminating unnecessary cost, among others. Almost every business at one point or the other has to consider cost-saving for various reasons, the main one being to grow and maintain profitability. It can also be used to curbing runaway expenditure as well as enhancing a company’s revenue streams.
In difficult economic times when every dollar counts, even the slightest drop in expenditure or increase in revenue, can have a significant impact on a company’s profitability. The good thing is that a massive business or company overhaul is not necessary. It is the basic simple tweaks here and there that can improve the bottom line, particularly for small businesses.
How do companies save costs?
To give you some tips on some of the effective cost-saving techniques, we have highlighted 10 cost-saving ideas that you can adopt in your business, but first, let’s look at how companies save costs
Techniques companies use to save money
There are several methods that you can use to save costs and reduce expenditure. Most of these techniques target mostly the operational aspects of the business. It emphasizes on issues such as cutting costs, changing strategies, and leveraging technology, particularly in marketing and promotion. Below are some of them.
1. Adoption of effective time strategies
Enhancing productivity is one of the most effective ways of minimizing the cost of doing business. Note that time wasted, is money lost, and therefore, we need to limit the amount of time wasted on unnecessary activities. To achieve this, you need to limit access to time wasters and remove or minimize distractions. Additionally, you probably need to invest in apps such as Rescue Time, Boster, or focus, to assist your team members to concentrate and focus on the important tasks.
For monitoring of employee’s time usage and time spent performing different tasks, you can make use of some software such as Togll and paymo. Alternatively, you can set expectations of the number of tasks or activities that are to be done within a certain reasonable time. You can offer incentives to employees who meet your expectation as a way of motivating them to work even harder.
Create schedules of activities that are to be done within a certain set period and encourage staff to strictly follow them.
2. Make use of Virtual Technology
Another way of cutting costs and saving money is the use of the internet or virtual technology. For instance, virtual meeting eliminates travel expenses in addition to solving the need of having a huge and pricy physical office. Just imagine for a second, how much your business or company spends on rent per year. What if there was a way you could save that money, would you take it?
Another way in which virtual technology can help you cut costs is through the use of google docs or Basecamp to eliminate the need for printing and storing files. This will minimize the cost of buying papers, printers, toners, storage equipment, as well as the cost for maintenance and repairs of printers.
3. Embrace online marketing
Online marketing is more productive and cost-effective as compared to the traditional method of marketing. This does not, in any way mean that you should get rid of the old methods that are working, however, you need to integrate them with the modern ones to get more good results.
Email marketing is an online marketing strategy that involves creating clients’ email lists to be used in a referral program. Referrals to potential customers from current customers are more likely to convert into sales as compared to traditional marketing methods. Another secret for successful online marketing is to network more and minimize on advertisements. Potential customers are more likely to engage and even buy from your business if it has a known face.
Social media is one of the most popular online marketing technique that has been adopted by most companies. Social media (Facebook, Twitter, WhatsApp, among others) have a huge following and advertising on such platforms means that your products are exposed to thousands of potential customers. The best thing about social media is that you can track and analyze your performance.
4. Lower Financial expenditure
For profitability, you’ll have to adopt measures that’ll cut the cost of production while optimizing productive income. To limit the cost of production, you need to identify expenses that you can either eliminate or reduce. So, go through your financial accounts and insurance policies searching for areas or sections where you can save money. Regarding insurance, you can save money by comparing offers from different providers, then choose one with the best price or, request your current insurance provider to match the offer.
You should also consider consolidating your business accounts and insurance policies. Another important thing you should do is to assess your insurance policy to ensure that you don’t pay for policies offering similar services.
Lastly, keep away from unnecessary debts. Conduct a detailed future forecasting as well as cost-benefit analysis when planning for expansion. Think about the opportunity cost and the impact of debt re-payment on your cash flow. Remember that too much debt can have a negative influence on the company’s interest, ratings, and ability to borrow in the future.
5. Reduce the cost of production
As a business owner, you need to find ways of acquiring raw materials at a fairly cheaper price without compromising quality. Here are some tips on how to achieve that;
- Instead of sending recyclable materials such as; metal, paper, and cardboard, to the recycler, you can sell them at a lower fee to generate extra revenue for your business.
- Make sure that you are getting the best value for your physical assets. Centralize or consolidate the areas and places required for production. Rent out the unused spaces ur offices to individuals or companies that need them
- Monitor and analyze the operational effectiveness of your business to reorganize and maximize the available resources. Create performance indicators that measure your business objectives and goals and offer incentives whenever the goals are achieved.
6.Minimize supply cost
Supplies form one of the core pillars of a business. There is no business or company that can function without supplies. In fact, all budgets have a component of supplies on them, and in most cases, it takes the largest allocation in a budget. Therefore, if there is one category that you should not miss when determining areas where you can cut costs and save some money, is the section on supplies expenses.
In small businesses, most of the expenditure that falls under the supplies category, are office supplies, while in large companies their supplies expenditures are categorized into factory and office supplies.
So, to reduce cost on supplies, you will have to contact vendors informing them that you are cost shopping. Inquire whether you can be considered for discounts or special rates. If their prices are still high, you can shop outside your usual pool of suppliers. For those business owners who operate a business that requires regular business supplies, getting a discounted rate for your supplies can save you a lot of money, which can have a major impact on your bottom line. Therefore it is prudent that you keep an eye out for discounts and keep searching for alternative sources.
7.Know the value of your time
Most business owners would take money over time, but it is equally important to understand the value of time and make sure you utilize it efficiently. For example, if you require some office supplies and you decide that instead of paying the $10 for a postage stamp for it to be mailed or sent to your office, you should drive there and pick it yourself. This means that you value your time at $10 per hour, and you haven’t factored in the gas and wear and tear. Instead of driving you would have paid the $10 postage stamp for the item to be delivered to your office. The hour you spend driving, you would have used it to earn more money. Remember that efficiency enhances productivity which in turn leads to an increase in profit.
8.Prompt payment of invoices
Prompt payment of invoices not only enhances your company’s reputation, but it increases your likelihood of being given special or discounted rates. Suppliers sometimes find it hard to get cash due to late payments by some of their customers, and therefore, they are more than willing to give you a discount, if you offer to pay them early. You can take advantage of this and save a few dollars off your budget. The trick here however is that you will have to have some money at hand for you to pay on time.
9. Buy second-hand equipment
Buying brand new equipment can be pretty expensive. However, it is not always a must that you should buy new equipment. You can get relatively new second-hand faxes, computers, laptops, or any other electrical equipment you need, at an affordable price. This used equipment works equally well, just like a new one. You will notice there is no difference in performance between the two.
While it is true that‘ you have to spend some money to get more’, what if you have the opportunity to save some of the money you spend? Every business or company has opportunities for saving some money from most of its expenses. Some of the money saved might appear small but in the long run, it totals up to a good amount of money. Some of these methods, not only decrease your expenditure but also promotes your productivity.
10. Find Cheaper Office Space
Rent is another expense that takes a lot of money from your budget. But you don’t have to pay for all that money, you can search instead for cheaper alternatives. For instance, depending on the real estate situation in your locality, if your office or shop is located in an area where rent is super high, you can search for other less expensive houses within that locality, and then renegotiate for better terms with you landlord.
Better still, if your business is the kind that you can operate remotely, you can choose to work from home. As an example, most of the tech businesses, have recently changed tact and are now running mobile tech services that offer in-house or in-home computer sales, tutoring, and repairs.
Small business owners, who offer electrical and plumbing services and those that offer bookkeeping services, are perfectly suited for home-based or mobile-based business. Apart from saving space, working from home can also save you money on things like business taxes, insurance, and utilities.
What are the 6 types of cost savings?
Cost-saving is essential if a company is to achieve its goals of productivity, growth, and profitability. There are 6 types of cost savings and they are:
1. Historic Savings
Historic savings are cost or price changes compared to the previous period. When calculating historic savings, the benchmark is derived from the previous period, which is then analyzed in comparison with the current price to establish the difference. This could be in relation to the current order quantities or current invoice. The result of this calculation is what is termed as the material price variance (MPV), or the call material variance (MPV).
2. Budget Saving or saving in relation to the budget
This can also be referred to as savings and is determined by a company’s views regarding budgets. For instance,
A budget can be viewed as a planning guide for procurement cost of purchasing per item generated from the last profit and loss statement, or the real or actual value from the last period in the case of individual procurement category.
In a more comprehensive budget, costs can be projected as quantities, which is, in turn, offers the budgeted procurement volume. Budget saving occurs when there is a positive difference between the planned budget and the actual invoiced volume or realized order.
This technique of measurement can be utilized in planning for items such as cost centers, materials, suppliers, investment projects, procurement categories, just to mention a few. if quantities and pricing are budgeted independently, the actual price impact can also be differentiated from the impact of quantity.
3. Technical saving
Technical savings are savings a company makes from specification alteration on the external procurement material. An example is when the high-priced Titanium metal is replaced by the relatively cheap steel sheet metal. The difference in prices is what is referred to as technical saving.
4. Request for Proposal (RFP) Saving
Request for Proposal Saving also referred to as RFP savings, involves a competitive process, where, a company posts a request for proposal notice and then waits for the bids or quotations from different suppliers. This method of procurement is used mostly by government organizations and agencies though there are some private businesses and companies that use this method.
Most business uses the targeted RFP where a request for proposal notice is sent to specific potential suppliers with the capacity to deliver and have a history of delivery with either the same company sending RFP, or other companies of similar stature. The bidder with the lowest quotation is the one who wins the tender.
5. Index saving
This type of savings also falls under the ‘cost avoidance’ category. It is a type of savings that is brought about by changes or developments in external markets that leads to changes in the price of certain commodities, services, or material. So, in short, index saving is more about timing and changes in market forces.
6. Ratio savings
Ratio saving is a type of saving that involves several other savings i.e it is a combination of many other savings. For example, it could be a combination of negotiation success or RFP savings and price variance or technical savings. The combination of these savings is what is now referred to as ratio savings.
All the above types of cost savings fall under three categories i.e cost savings, opportunity cost, and avoided savings.
- Cost savings; are the types of savings that are generated as a result of minimizing an existing expense. For example, the savings you make after changing the energy-consuming incandescent bulbs to the cost-effective LED bulbs.
- Opportunity cost, on the other hand, is realized when a company decides to forego a future benefit for a present success, by choosing one option over another. A good example of an opportunity cost is when a company decides to sell a piece of land (that could have been used to build the company’s storage house or company offices), exchanging the opportunity cost, for instant cash.
- Avoided cost; as the name suggests is a missed expenditure or rather, one that was not incurred. An example is when a company or an organization decided to spend money on cybersecurity to prevent the potential cost of a data breach.
How can a company reduce fixed costs?
Fixed costs are those expenses that don’t change regardless of how many products you produce. Examples of fixed expenses are; rent, loan repayments, insurance, banking fees, advertising, and equipment lease. The term ‘fixed’ can be misleading. The truth is that these expenses changes over time – in short, they are not cast in stone. You can actually change them yourself and enhance your profitability. Below are some tips on how you can reduce your fixed expenses
In most cases, rent payments are usually agreed upon in a lease. Most people think that rent lease cannot be changed and that once you have signed on those dotted lines you are bound on the agreed payment rates for the entire period of the lease. The truth is that you can re-negotiate a lease. You can use, your willingness to extend the lease period as leverage during the negotiation. For instance, if you are currently on a 3-years lease and you are left with say, one year in your lease agreement, you can agree on a 4 or 5 years lease, if the owner is willing to reduce your monthly payments. He/she is likely to agree to this to avoid a vacant premise (interruption of revenue stream) when you eventually move out at the end of the lease period.
Salaries and wages are inevitable in any business – unless of course, you are willing to work alone. That being said, there are a few things you can do to reduce your salary expenditure. For instance, you can consider slashing some salaries. If all your managers have an assistant you can opt to change that to a pooling kind of arrangement, where the managers share an assistant. Alternatively, you choose to do away with some managerial positions. If for instance, you have both shipping and production manager, you can decide to have just one manager in charge of the two functions.
You can negotiate with your insurer for a reduction in your insurance premium. For instance, if you have a theft policy, you can have security systems in your premise and use it to negotiate for a lower premium. As for fire management policy, you can reduce the premium by having a sprinkler system installed. If you haven’t made any claims since you took the policy for the last 3 or 5 years, you can request the insurance company to offer you a reduced rate. And if they are not willing to do that, you can shop around for a better deal.
Assess whether your advertising methods are giving you value for your money. You might be on a traditional marketing plan that is no longer effective as it used to be. Consider alternative options such as email campaigns, mobile phones, and text advertising offering a flash sale that lasts a couple of hours. You can also opt for sidewalk advertisement, where you ask an artist to do a write-up or a painting about your business on a sidewalk, All these are cheaper options and can give a good return on investment.
Loans and equipment leases
Loan repayments and equipment leasing fees are other expenses that take money out of your business every month. You can discuss with your bank or equipment leasing company for lower monthly payments. As for the loan re-payment, you can start by requesting a lower interest rate, which if accepted, will result in lower payments. Another option would be, a longer repayment term. Even though this will lead to lower monthly repayments, you might end up paying more interest. For the equipment leasing, request for lower repayments. Some leasing companies have a flexible interest and therefore you can renegotiate.
How can I save money to start a business?
We are living in an era where most young potential entrepreneurs think that for one to start a business, he or she has to get into debt. Nothing could be further from the truth. You can save money to finance your start-up. Here are tips on how to go about it
The first step in saving for your business is to develop a budget. You can create it the old way using a pen and paper or use some of the many apps available online. The hardest part is usually the implementation of the budget. Most people find it difficult to stick to the budget, but for you to be successful, it is prudent that you stick to it. Remember that budget are fluid and therefore you can change it to meet your needs.
Give priority to what is important
For you to save money you need to identify expenses that are not a priority and the ones that you can do without. This are the expenses that you should eliminate from your budget or reduce the amount of money you allocate to them. For example, it might be part of your routine to grab a cup of coffee, as you head out for a morning jog. While there is nothing wrong with that, but if you were to save some money for the business, these are some of the things that you will have to do without – at least for the time being.
Look for opportunities to save
There are those expenses that you simply cannot do without them. This are the expenses that should be in your budget but when spending money on this item, look for opportunities where you can save something – even if it’s a few bucks. If it is a shirt you are buying, choose one that is fairly priced and whenever you buy anything, try to negotiate for a lower price. Also watch out for special rates, discounts, and special offers. Take advantage of these opportunities to grow your savings and start your business.
Do away with high-interest debt
You can never grow your savings if you have a debt that is increasing with every passing day. So, it crucial that identify debts that you have that have high-interest rates and start paying them. Do the best you can to clear them soonest possible. By clearing them, you will have more cash to set aside for that dream start-up.
If you follow all the above tips, you will soon have enough money to start your business – debt-free. If you want us to take a look, our cost reduction consultants can help you reduce costs today.