19 Ways To Reduce Costs And Increase Your Profits
There are 3 main ways to improve the profitability of your company: Sell more, price higher and reduce costs.
Some organisations focus mainly on selling and on delivering great service to customers. That is great. Let us remember that profits can also be increased by greater cost efficiency. How do we achieve this?
Here are 19 practical ways of reducing costs and increasing your profits. How much might you take action to make 2019 a more profitable year?
- See every cost as “up for grabs”. No cost is too small to worry about. Ask yourself: ”If I eliminated this cost, would revenue, customer satisfaction or profits be adversely affected?” For all costs associated with customer satisfaction, be sure you are only spending on what customers really value.
- In areas where you wish to control costs, set authorisation levels so that approval is required before the expenditure is made.
- Speak to your suppliers and negotiate reductions on the cost of your purchased products. What % of your sales are you spending on purchased products? If this is 40% and you reduce by 10%, you have added 4 margin points to your bottom-line. Start with highest cost items first.
- Never let the purchasing person be the sole person negotiating the price, as this individual can get too close to suppliers. You need to retain an element of the “tough guy”.
- When suppliers say “no”, do not give up. Keep asking.
- Consider the cost and use of purchased services e.g.
- Office supplies
- Maintenance contracts
- Sign cheques yourself or at least above a certain value. This will keep you aware of what is being spent in your company.
- Review all capital expenditure.
- Reduce stock by purchasing only when necessary.
- If you never fire an employee, you will not maximise profits or achieve a high performing business, hard as this may seem.
- Say “no” to additional hires, until it is crystal clear the resource is needed.
- Evaluate salary levels relative to the value each individual brings to company profitability.
- Never give regular bonuses unless they are linked to improved productivity and profits.
- Narrow benefits to those few that employees truly value.
- For underperforming and unprofitable businesses, opportunity abounds. Much work done is unnecessary, while the necessary work is often done inefficiently.
- In most profitable businesses, managers have broader responsibilities and spans of control (direct reports per manager). Consider if you can eliminate some of your administrative and management positions.
- Streamline your meetings. Make decisions, call customers, reduce costs and take actions all day long.
- Create a sense of urgency by having a list of actions for each day. Identify what actions raise revenue or reduce costs. Get these done by noon. Then you can work on other matters.
- Do not over delegate. Everything that truly impacts the bottom-line, decide yourself.
These cost efficiency steps have been adapted from the book by Bob Fifer on “Double Your Profits in 6 Months or Less”