Reducing Cost: 9 Proven Ways to Optimize Business Spending
One of the most impactful ways to enhance your business is to reduce the costs of operations. Reducing costs allows you to apply the savings to actions that enhance your core competencies and the pursuit of your business growth goals.
As such, we’ve compiled a list of nine tactics to reduce costs in your business that have been proven to be highly effective.
Reducing Cost: 9 Proven Ways to Optimize Business Spending
1. Make It Known That You’re Shopping
One of the best ways to reduce costs without rocking the boat, so to speak, is to let each of your vendors know that you’re going to be price shopping their products or services.
Vendors know that the cost to replace a lost client is much higher than the discount they may need to provide to keep you around. You’ll likely find that your vendors are willing to reduce the costs of their products or service to maintain their account with your business.
Some discounts will be larger than others, but the savings across your combined vendor list can be significant. You may also find that some of your vendors are willing to upgrade your service, giving you more for your current price.
If a vendor is unwilling to offer anything of value for you to remain a customer, evaluate whether or not their competitors actually can provide the same benefits to your business at a lower price. Good vendors are typically worth the investment, but taking the time to evaluate what they provide, ask for discounts, or potentially change vendors could present your business with a significant savings in the long term.
2. Modernize Your Marketing
Operating at your maximum in the digital age means updating every aspect of your operations, including the way you market your business. When implemented effectively, digital marketing represents an opportunity to dramatically reduce the cost of your monthly marketing expenses.
For example, print ads can be swapped for digital versions. Digital advertising platforms—like Google Adwords, Facebook, and LinkedIn—all provide precise targeting tools that allow you to reach your ideal buyer far more effectively. What’s more is that this type of precision marketing allows for the generation of better qualified leads, which make for easier conversions to paying customers.
This translates to a significant increase in your return on marketing investment and even reduces the resources required from sales to close new deals, streamlining the entire customer acquisition process.
Investments in a conversion-focused website, digital advertising, and search engine optimization can provide your business with a considerable improvement in results while reducing costs at the same time.
3. Embrace New Technologies
While we’re on the subject of modernizing your business, embracing new technologies almost always leads to reducing costs. New business applications can help you solve project management issues, streamline your operations, and automate countless business tasks, just to name a few.
Streamlining operations leads to increased efficiency and boosted productivity, which in turn make for reduced costs. When you get more done in the same amount of time, you’re spending less to produce more.
When talking about reducing costs for businesses, we can’t ignore the opportunities presented by cloud computing.
Whether that means taking your data and/or applications to the cloud or simply implementing a VOIP solution to optimize your communications, these modern technologies provide multiple business benefits while reducing cost at the same time.
Migrating data or apps to the cloud is a great way to reduce costs, sure, but it also means never having to pay for hardware, providing your people with the ability to connect from anywhere in the world, and always having your technology up to date.
In fact, cloud systems provide so many business benefits that we recently wrote a comprehensive article on the most important benefits of cloud computing.
This is one of the benefits of cloud computing referenced in the aforementioned article and is also a highly effective way to reduce costs for businesses of any size. Remote positions are a growing trend and when well executed, they benefit both the employee and the employer.
For the employee, working from home means more flexibility, increased productivity, fewer expenses, and time savings. For the employer, each remote employee makes for a smaller office space and reduced costs for utilities, hardware, and other infrastructure required to host a full-sized office and the accompanying staff.
The same principles apply to our next tactic for reducing cost.
Outsourcing means different things to different businesses. Whether you’re taking jobs overseas or hiring an outside entity to fulfill tasks that you’re currently doing in-house, outsourcing is a highly effective way to reduce costs.
You may find that simpler tasks like data entry or customer service can be done by employees outside of North America for far less. For more sensitive matters, you may not be comfortable sending these positions overseas.
However, you may still find that an external accounting firm, for example, may be able to support your businesses accounting needs at a reduced cost to your in-house accounting team. Where many internal teams are not held to their highest level of productivity, these external teams typically deliver enhanced productivity, thanks to cutting-edge technology and streamlined business systems.
Eliminating an entire department may be too big of an initial step, but consider consolidating various departments by outsourcing various tasks or positions. For example, rather than outsourcing your accounting team, outsource payroll or automate your payroll processes with a sophisticated business application.
The same could be said for your marketing, sales, HR or IT teams (or virtually any other department for that matter). If your current teams aren’t producing results that justify the cost to employ them, you may find external solutions to provide a similar (or even greater) output.
6. Reduce Employee Turnover
The impact of regular employee turnover is greater than most businesses realize. The cost of hiring and training new employees is considerable. Not to mention, the decrease in productivity that occurs each time a new team member has to be integrated and brought up to speed on your systems.
Boosting employee retention is such an important issues that we have a full guide on the subject. Be sure not to miss it!
7. Promote Efficiency and Productivity
Often, one of the reasons spending gets out of hand is because there isn't enough internal reinforcement of efficiency and productivity. Where managers are often tasked with meeting goals, they’re typically based on minimal improvements over results from the previous years.
These same managers are expected to optimize budgets, but their motivations are often focused around reducing overall costs as much as possible.
Rather than sticking with systems that allow you to “get by,” encourage your internal leadership to explore new opportunities to get more out of their existing teams. Revolutionize your internal systems by emulating forward-thinking industry leaders. It could mean boosting your productivity dramatically.
Furthermore, explore new tools that empower your teams to do their best. Implementing new tools to support precision, efficiency, and productivity may indeed require an additional financial investment and redirected resources to implement them successfully. However, if the result is a higher yield from your existing personel, the long-term return on investment is well worth it.
It may seem counterintuitive to recommend spending more in an article about reducing cost, but cost is a relative figure. A small increase in spending is justified when it results in higher outputs from your employees and a boost to your bottom line.
Encourage the ingenuity necessary to keep your business evolving. It’s how leading organizations remain relevant and invest in the longevity of their brand.
8. Pay Invoices Early
It’s a lesser-know trend, but many of your vendors will be willing to give your business a discount for paying their invoices early. The discount may seem small, but the collective savings can add up, especially over the course of the fiscal year.
If you’re not prepared to pay your invoices early, being sure to pay them on time is another good way to avoid unnecessary costs in the form of late fees and penalties.
9. Go Green
This tactic may seem straightforward enough, but countless companies around the world are still wasting natural resources and their budgets every month. Going paperless reduces costs and typically makes for more efficient business systems and record-keeping. Installing energy efficient lighting, shutting down unused workstations and machinery, and programming thermostats can all reduce utility costs significantly.
Many businesses are even making the investment to utilize solar power, install low-flush toilets, and purchase green energy credits. It all leads to reducing costs and improving the public's perception of your brand when ported correctly.
When it comes to reducing cost in your business, your success is based on one thing—action. All of the methods outlined above are proven to be effective. However, they require the action of your team to implement. Brainstorming and planning have their place, but to truly reduce costs don’t miss your opportunity to take action.