Every entrepreneur invests a lot of money into the business. From buying machinery, renting office buildings, to purchasing furniture – setting up a company costs a fortune. And soon enough, the business runs out of cash because of high raw material costs, delayed receivables, etc. In such times, entrepreneurs raise additional capital to keep operations running, but that’s not a viable approach. Instead of pooling in more money, you have to cut back on costs and increase profitability.
Do you know your company’s primary expenditures? Often, organizations spend millions on conventional marketing campaigns to create brand awareness. Similarly, they have to spend a lot of money on travel for international conferences and meetings. At times, the warehousing costs a lot because of the piled-up inventory. In addition to impacting productivity, these expenses drain business profits. Therefore, every company should initiate cost-cutting strategies.
Perhaps, you can switch to digital marketing, embrace technology, or outsource operations for additional savings. If you want to learn more about this, have a look below. Here are six cost-cutting strategies you should implement to maintain business profitability.
- Cutback on Travel Costs
As the cost of corporate travel continues to increase, it is becoming a significant drag on the bottom line. The company has to book a hotel, rent a car, and purchase flight tickets for the employees, making this a substantial expense. So, why not begin by scaling down the travel costs? Firstly, schedule a trip in advance to save on flight tickets. Managers can also take advantage of reward programs for free stays or flights.
Moreover, if employees are traveling for on-site projects, opt for man camp housing instead of hotels. These camps are available at the most affordable rates with the same amenities, helping you save a few bucks. Besides this, encourage employees to attend conferences virtually. They can connect through Skype or any other video conferencing tool rather than traveling all the way. These few changes will curb the extra travel costs, improving business profitability.
- Reduce Financial Expenditures
Have you taken any loans? Most companies try to avoid external financing, but those who get their hands on debt have to incur finance costs. They have to make monthly repayments inclusive of interest to repay the loan, reducing profits. Here, you can consider consolidating the loans for a better interest rate. Similarly, analyze the opportunity cost and effect of debt on cashflows. It will lower the expense and increase profitability.
Besides this, look for insurance policies and financial accounts to pinch a few pennies. Perhaps, compare the rates of different insurance providers and ask your agent to match that rate. Also, recheck the depreciation to ensure you are not overcharging the expense. These financial overheads consume almost 20-30% of business profits; hence, find ways to reduce them.
- Outsource Operations
The primary reason why companies outsource workflows is that they want to save money and gain focused expertise. You can pay for the services you need without making substantial investments in software development or infrastructure. For instance, if you want to automate accounting processes, you can hand this task to a third party. They will maintain records, eliminating the need to buy any software or IT equipment.
Likewise, you don’t have to hire or train employees to run accounting processes. In addition to controlling costs, outsourcing will boost productivity and efficiency. However, conduct a cost-benefit analysis before making any decision. You have to compare the prices of outsourcing with internal operations to determine which is the more cost-effective option.
- Switch to Digital Marketing
Billboard advertisements and TV commercials have always proven beneficial for companies. But unfortunately, these marketing campaigns are pretty expensive. Thus, it would be worthwhile to consider some digital marketing alternatives. You can build email lists and implement a referral program instead of giving away pamphlets. It will save paper and printing costs, reducing the overall marketing expense.
Likewise, use social media forums to build a strong network. These days, clients are more likely to work with a business with a reputation in the market. Apart from this, integrate AI and machine learning tools to launch personalized marketing campaigns. It triggers impulsive buying, boosting revenue generation while reducing marketing costs.
- Phasedown Production Costs
Undeniably, the raw material cost increases with time, making it arduous to scale down production costs. Even then, you can optimize resources and streamline the production process. Here are a few suggestions.
- Measure the production unit’s operational efficiency. You can set performance parameters reflecting the efficiency goals and offer incentives for achieving those goals.
- Centralize the production space. If any area is empty, lease the unused space to another business. Otherwise, you can turn that space into a small warehouse for storing stock.
- Recycle or sell the leftover material. May it be metal, cardboard, or paper, you can always use your waste to create another product.
- Keep looking for new suppliers in the market. Likewise, explore international markets and consider importing the raw material if it’s cheaper abroad.
- Automate the mundane tasks to spend more time on operations that add value to the overall production process.
- Harness Virtual Technology
The concept of remote teams has become increasingly popular in the new decade. People find it more convenient and manageable to work from home, allowing businesses to cut costs. Besides the rentals and utility bills, companies don’t have to incur infrastructure costs. However, if remote operations don’t seem possible, automate the workflows. You can integrate technologies like Basecamp to centralize company documents and product collaboration to eliminate paper documents.
Similarly, scrap the landline system and switch to internet calling apps. They offer the same applications as the phone service, such as voicemail, call screening but at affordable rates. In addition, you can also centralize operations. Instead of hiring different bookkeepers to record entries, switch to accounting software. It will extract data from applications themselves and record entries automatically. The tech integration costs might be high, but it will reduce expenditure in the longer run, increasing profitability.
Final Thoughts
During times when profitability seems stagnant, implementing cost-cutting strategies is the best practice. It allows businesses to curb expenses that have been scaling down the profits. Likewise, you have to identify additional costs that don’t bring any value to your venture. You can also reassess the marketing budget and production costs to reduce the expenditure. Most importantly, reap the benefits of technology to create a paperless and more productive working environment.
