For any organization, no matter the size, it is important to stay competitive and strive for maximum profitability in order to stay relevant. That means keeping an eye on and optimizing both the bottom line and the top line of the business.
While activities like generating leads and conversions definitely add to growth, managing your company’s operating costs well is something that will have an immediate impact on profit margin, leading to tangible results.
First off, it is imperative to know what exactly the operating costs are, and understand how one tracks and measures them. Working on a strategic approach to cost management will equip your business to not just survive, but thrive.
Here are 7 aspects of the business that you can consider optimizing for better expense management.
- Leverage technology to keep human costs and errors low
New and efficient technologies can help businesses stay ahead of the curve, by moving the organisation towards better, scalable, and cost-effective processes. The key here is to take a proactive approach to digital transformation, by identifying the specific operational challenges faced by your business, and by choosing technology solutions that can help alleviate these challenges. For example, using a software-based solution for invoicing can help reduce error margins and drive down the human costs.
- Outsource what’s not intrinsic
Think about what absolutely must be done by your core team and what can be managed by someone who is not on the payroll. The key areas to think about when making this decision are the volume of work, the turnaround times, the level of impact on the success of your business, and whether the task is a one-off project.
While it can be a challenge to engage with freelancers or vendors from a coordination perspective, you could potentially end up saving a lot of money on recurring salary costs, vacation days, insurance, and infrastructure costs.
Outsourcing is also a great way of engaging with subject-matter experts, who you may only require for a limited period of time but who can contribute significantly to the growth of your business.
- Introduce RFP processes for vendors for the right rates
Healthy competition is good for any set-up, especially when looking for vendors to work with. An effective Request-For-Proposal (RFP) process will help you find the right fit for your business, given your key business requirements.
The important thing is getting the process right and identifying the key asks for your business. This could range from the best pricing available, the most exclusive quality, or the highest level of efficiency. Whatever the task may be, the correct RFP process can help you identify the best vendor for your needs, and enable you to get the most benefit out of the collaboration.
- Track and improve employee spend management
By taking a closer look at your budget, you will be able to track and optimise employee spend. A few easy things you can do include negotiating with your credit card company for lower rates, avoiding overdue bills, evaluating your insurance policies, and comparing providers.
In addition to this, assess employee productivity levels on a regular basis. Have clear goals and evaluation metrics in place. Restructure the roles of underutilised staff members and have tough conversations with underperformers.
Not only will this help the growth of your business, it will also support the growth of the individuals you employ, giving them clear, measurable targets.
- Reduce fixed costs such as infrastructure and office spaces
Depending on the needs of your business you may or may not choose to operate out of a commercial real estate. Avoid taking leases in prime locations just for the value of the address. Better yet, if you can, run your set up from a non-commercial premise, or entirely remotely.
As a result of the current COVID19 crisis, companies across the globe have discovered that almost all non-essential tasks can be managed remotely, as long as goals and metrics are agreed upon in advance with employees and clear accountability has been established. By operating remotely, you can save not only on rent, but also on additional costs such as insurance, taxes, and utilities.
Studies show that 86% of employees say they’re most productive when they work alone—devoid of distractions like inefficient meetings, office gossip, or loud office spaces. 68% of millennial job seekers said a work from home option would greatly influence their interest in working for a company.
- Waste reduction across processes
Very often, administrative processes that are no longer cost-effective continue being followed despite their inefficiency due to organisational inertia or a tendency to want to avoid “rocking the boat”. It is important to re-evaluate what is working and what may require tweaking. Here are a few questions to consider.
- Manual processes: Can the task at hand be done with little to no human intervention?
- Timing: Can you save costs by shifting the timelines of doing things. Does doing something in batches bring more efficiency? Can tasks be completed at designated times of the day/week/month, reducing dependencies on people?
- Customer self-service: Can self-service technology handle your customer requirements to a certain degree?
Streamlining these processes can help a business identify and cut unnecessary expenses, boosting the bottom line.
- Leverage efficiencies of scale for inventory
Inventory management can often be a big challenge for small businesses, since it is both an operating cost as well as a financial asset. While carrying less inventory can mean having less money tied up and more liquidity, scaling up inventory can be far more cost-effective for the business.
What one needs to be careful about though, is inventory tracking and management. There are tools that can be deployed for the same, ensuring you are not spending more than needed while keeping a constant eye on what is or isn’t moving.
What cannot be measured, cannot be optimized
Goal setting, focused decision-making, patience and dedication will take you closer to your business goals. Even with little experience or any drastic measures, you can find ways of cutting costs and saving money in your day-to-day operations. Once you learn how to manage your time in the interest of your business, you will be able to turn it into money, one way or another.