Keeping your company’s costs down is a great advantage in business. However, in a volatile and competitive market, it is not always easy to answer the question, “how to control and reduce costs?”
Controlling your costs has become a priority as important as increasing your company’s revenues. This is why performing an internal evaluation of expenses and understanding how your processes function is the best path to identifying unnecessary costs and establishing an efficient program that will offer sustained benefits for your business.
However, it is up to entrepreneurs to find the best strategies to reduce costs and streamline business management processes. And that reduction means getting more flexibility to take advantage of market opportunities.
Thus, it’s essential to make investments and reap the benefits of this endeavor. However, we do recognize that reducing expenses is a big challenge, which is why we’ve selected a few tips to help you on your way. Take a look!
1. Measure your costs
Before you create an action plan to reduce your costs, you need to make an evaluation of your company’s expenses. Once you’ve collected this data, make a detailed analysis of your expenses from the most relevant (or the largest) to the least relevant. This analysis will allow you to identify many “hidden” costs that are certainly affecting your company’s results.
Knowing every expense is essential to coming up with possible solutions. Besides, by going through this exercise, you’ll be able to measure your main expenses and identify those that are unnecessary, or in other words, those that don’t add value to your company. Remember that it’s impossible to manage what you haven’t measured.
2. Make short-term, medium-term and long-term analyses
To take assertive control of your expenses and reduce costs, it’s important to visualize your reductions over the short-term, the medium-term and the long-term. To do this, evaluate alternatives that will reduce your costs over a longer timeframe. That way, your company will not risk basing its results only on the short-term, which won’t last very long. A study conducted by McKinsey shows that only 10% of cost reduction projects were successful 3 years after their implementation.
3. Improve process management
Evaluating only ledger accounts or cost centers is not enough to identify potential bottlenecks and problems in your company’s processes. Therefore, when thinking about processes, many activities are revealed – such as rework, duplication, or processes and actions carried out with low value for the company and its customers.
The problem is that many companies have difficulty mapping and understanding all the processes involved in the production of their products or services. Completing this task takes time and requires the business to commit to evaluating the enterprise.
It is important to define what are the outcomes or products delivered at the output of each process, its components, suppliers and limits. Since controlling and reducing costs are tasks that require information, you need to pay attention to internal processes.
4. Renegotiate or rethink contracts
Negotiating with creditors can be a viable alternative to controlling and reducing costs. Therefore, make agreements with suppliers and negotiate the best payment terms so that they can be realized without major financial consequences.
In addition to this, rethinking contracts and researching the market to find out what’s available from other suppliers is a strategy that can also offer large savings for your business.
So, improve your purchasing sector. That way, this department will be able to find trade partners that help boost your business but also do not represent unfeasible investments.
As controlling and reducing costs may cause the company to switch suppliers, this possible change has to occur with the right planning. This prevents this exchange from harming the company’s workflow or the quality of what is offered to the customer.
5. Automate cost management
Enterprise Resource Planning (ERPs) is a solution that enables enterprise-wide data integration. However, they do not offer all the subsidies for efficient cost management, especially when we want to understand the impact of indirect costs on various products and services.
The tool is also not able to simply model profitability analyses per customers, channels or regions, which is so critical nowadays. Faced with this demand, companies (such as MyABCM) offer advanced tools for cost, profitability and performance management through software designed specifically for this purpose.
Reducing company costs is the best decision, especially in a market that’s this volatile and selective. This decision requires investment in appropriate technology. And just the desire to accomplish it is not enough if the company does not have the right tools for this mission.
6. Outsource services
There is no reason for a business to absorb hiring and payroll-related costs from non-priority sectors. Therefore, when working with outsourced labor, the company gains efficiency, as it hires a partner specialized in that market to serve it.
In addition, there is more freedom to demand results and compliance with what was agreed in the contract. The business can also take advantage of talent of their managers and Human Resources professionals in the management and training of employees who are essential to the brand’s target activity.
Because controlling and reducing costs requires efficiency, outsourcing is a perfect alternative to achieving better financial results without disrupting internal activities.
7. Invest in professional training
While this topic sounds more like an investment than a cost-cutting action, keep in mind that rework can negatively impact the results of a business. Therefore, ensure that your employees receive appropriate training after hiring and that they are able to perform their duties.
In addition, if you identify failures, turn them into learning, using them as cases in internal training. That way, the company will be able to understand how to control and reduce costs through strategies that keep their staff motivated and feeling valued.
After all, educating a professional – making their performance better – can be more beneficial to an enterprise than trying to hire someone who already has certain professional qualities.
8. Fight unnecessary costs
Technological advancement can also be used to fight against waste, from the simplest, such as resource consumption, to the most complex, such as improperly performed activities.
Unnecessary costs are associated with a company’s lack of knowledge of what is most modern in its market, and what could be used to make it more efficient.
As we have seen, answering the question “how to control and reduce costs?” requires managers to be willing to assess their companies with a careful eye, examining the details without fear of having to admit that certain strategies did not bring the expected results.
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