There’s more to cutting costs than leaving the creamer out of the break room. Serious expense reduction requires serious thought and an organized approach so that you’re able to reduce waste without impacting the quality of your services and products. But it’s not as simple as you’d think. In fact, a lot of businesses focus on the wrong strategies to save pennies instead of making the right investments that will save them way more. If you’re looking for ways to reduce costs and improve efficiency in your organization, you’re in luck. There are plenty of strategies you can deploy to cut expenses without cutting your staff or benefits.
Cost reduction is the process of reducing unnecessary expenses to increase their bottom line. Methodologies and results vary from business to business. However, effective cost-cutting is a dynamic, continuous, and reflective process. Businesses are fluid, and cost reduction needs to follow suit. But, it’s not as simple as you think… If you approach cost reduction from an elimination-only mindset, you’re missing out on a lot of other very useful strategies. Shockingly, you could actually end up costing your business more. There are 6 types of cost-saving approaches:
- Adaptation – Adjusting to customer and market demands with leaner solutions
- Combination – Bundle goods and services across an organization to reduce costs
- Elimination – Remove unnecessary products, processes, benefits, and workflows
- Optimization – Streamlining processes and workflows to reduce bottlenecks and redundancies
- Substitution – Using cheaper products or services
- Repurposing – Utilize existing tools, technology, and processes in new, unique ways that meet demands
Here are cost cutting techniques for growing a business.
1. Establish realistic goals
Before you start looking at how to reduce expenses, you need to establish realistic goals. This way, you can quickly see if your initiatives are successful. Goals should be specific and detailed. And you need to establish milestones for measuring progress.
2. Evaluate business expenses
Your next step should be to evaluate what your business spends money on. Pull all the data for expenses. You should build both a snapshot and an itemized list of expenses. This will help you see where your money is going. Often, this is a quick way to identify waste.
3. Get staff buy-in
Changing your organization’s mindset on cost reduction is key to success. Share the benefits of reducing waste in your organization. And meet with leaders to underscore the importance of their role in helping the business reduce costs.
4. Ask employees
No one knows the ins and outs of their department better than the employees working there. Take the time to ask your staff where they think waste might be. Note those areas. And evaluate whether or not cost-cutting is possible there. You can also encourage and reward your staff for finding more efficient ways to work.
5. Hire remote workers and freelancers
More people work remotely than ever before. Hiring remotely can save you money on office space, around $10,000 per employee per year. And while self-employed freelancers and contractors may have higher hourly rates, they don’t need benefits. Studies also show that remote workers are happier in their jobs and as a result, more effective. Plus, a remote staff means fewer sick days and higher productivity levels.
Despite a bad reputation, outsourcing can give you high-quality products and services at a reduced cost. And you don’t need to outsource abroad either. Working with contractors based in cities with a lower cost of living often charge lower rates, helping you reduce costs.
7. Reduce wages
This should only be used as a last resort. Reducing wages can damage employee morale. However, if it’s wage reduction or dismissal, employees will often prefer wage reduction. Still, be very careful before reducing wages. There are plenty of other (better) cost-cutting measures.
8. Combine/bundle purchases
A lot of organizations miss out on the cost-cutting benefits of combining purchases and services. Rather than letting each department order what they need, you can combine orders or requests and get bulk discounts. With software, insurance, and other products, you can often get discounts for bundling your needs with the same providers.
9. Go green
Replacing dated appliances, lights, and fixtures with long-lasting, energy-efficient alternatives. Reduce the use of paper by going paperless. Using smart thermostats and appliances can also help you reduce energy bills. And establishing a workplace culture that focuses on reducing carbon footprints can also help you achieve additional cost reduction.
10. Reassess your services and products
Businesses tend to rely on the, “If isn’t broke, don’t fix it” mindset. But that approach is in direct opposition to cost reduction. You should regularly revisit the type of services and products you provide. Ask yourself, “Do our customers want this? Is there a better or cheaper way to deliver the same or better level of service? What are our competitors doing?”
11. Evaluate new products/services costs
Before adding new functionality to an existing product, expanding your service line, or building out a new product, you need to consider the cost. Most organizations underestimate the cost of projects. This can stall development and tie up critical resources. It can also put an organization at unnecessary risk. And always evaluate the ROI before launching a new product.
12. Combine staff events
Rather than keep team-building activities and training second, get the most out of each event you schedule by combining them. You’ll cut costs while still maintaining a positive workplace culture. Also, look at the time of day and week for certain activities. You may save more money by shifting the time around.
13. Replace unproductive staff
Most likely, there is at least one member of your team that’s underperforming. While you may be holding off on releasing them due to a number of personal reasons, there comes a time when letting them go is more cost-beneficial than keeping them around.
14. Promote productivity over hours worked
Shift the mindset away from working long hours and focus more on accomplishing tasks. There’s a certain point where more hours doesn’t result in more productivity, anyway. With this change in mindset, your employees will produce more results.
15. Reduce Maverick Spend
Unapproved spending (or Maverick Spend) is particularly rampant in organizations without clear insights into purchase order approvals. By increasing transparency in your procurement process, you’ll reduce unapproved spending, consolidate orders, and get discounts on goods and services that keep your company within budget.
16. Integrate systems
Data siloes can ruin your business. The more siloes, the more blind spots. And the more blind spots, the more likely it is for waste uncontrolled maverick spending, fraud, and theft to occur in your business. By integrating systems and applications in your organization, you’ll increase transparency and make it harder for malicious spending to happen.
17. Review previous cost-cutting strategies
Organizations often have to put tasks on hold. Unexpected things happen and that causes the focus to shift. Rather than waste time and resources reinventing solutions, review previous cost-cutting strategies and see if they’re still applicable.
18. Reduce meetings
Most meetings are an expensive waste of time. On average, organizations spend 15% of their time in meetings, 37% of which are meaningless. Meetings should be short, only involve key players, and have a strategic goal. Remove any meetings that don’t meet these criteria. And use other channels like presentations, email, and memos to share information.
19. Evaluate potential process improvements
When’s the last time you evaluated the workflows in your organization? As businesses grow and their customers’ needs change, simple systems often become a tangled mess. Continuous process improvement focuses on constantly looking for ways to improve workflows.
20. Transform business processes
In 60% of jobs, at least 33% of the activities can be automated. Automation and integration reduce the need for time-intensive, manual tasks. Integrations connect your disparate systems. And automation moves the data between chose systems efficiently. For example, if you’re still manually processing invoices, you’re wasting a lot of time and money. Manually processing invoices can cost between $12 – $40 per invoice. The quickest way to reduce costs in your business is to move from manually processing invoices to automating the process (That only costs around $3.50 to process…an incredible difference).
21. Ditch the legacy systems
Legacy systems are time and resource-intensive to maintain. On average, a company spends $3.61 per line of code. With the average-size application at 300,000 lines of code (LOC), that comes to ($1,083,000 per application) to maintain and fix legacy software. Plus, 33% of engineer’s time goes to dealing with technical debt. That’s time wasted on repairing existing software, not working on new innovations that could increase revenue.
22. Leverage low code platforms
Low-code provides an easily approachable solution to reduce inefficiencies while reducing costs in businesses of any size. In short, low-code platforms make it easy for anyone to quickly drag and drop new applications into existence. All without extensive coding, testing, or building of back-end infrastructure. As a result, you can build the apps you need and connect them to your existing systems at a fraction of the cost of traditional, custom app builds. By doing this, you’ll be able to scale your systems to support your growing business without burning through your budget on IT resources.
23. Deploy robotic process automation (RPA)
Robotic process automation (RPA) is great for rapidly managing transactional-based tasks that are highly repetitive and rule-based. It also provides a very high ROI (between 30% – 200% in the first year). Leveraging AI, bots can do everything from extracting data to moving files and folders. They can even interpret text, engage in conversations, and understand unstructured data. With RPA, you can reduce the time spent on menial tasks, giving your staff more time to focus on vendor relationships or value add activities.
24. Invest in better systems
There is only so much you can do to improve your business as it is now. At some point, if you want to see a truly impressive ROI, you need to rethink how you do business. And that means organizational transformation. That shouldn’t scare you. And no, we’re not talking about 7-figure plus IT projects that may or may not yield a positive ROI. Instead, we’re talking about a strategic approach to improving the functionality of your business by investing in systems designed to increase efficiencies and cut costs. But to build those systems, you need to invest in the right technology.
Luckily, as we mentioned, low code makes it easy to build custom applications and integrations for a tiny fraction of what custom application development costs. Still, there is an initial investment in the system, training, and cultural shift. Effective business transformation starts with a cost-cutting strategy. And while the other tactics on this list are about removing costs, building better systems requires spending more money now knowing that the ROI will pay out immensely over time.
25. Work with business transformation specialists
There are a lot of ways to cut costs in your organization. Some are quick wins. Others will take time. And still, there are approaches that may end doing more harm than good. That’s why if you won’t want to waste money trying to save money, you need to team up with experts. Working with consultants that specialize in business transformation will save you time and money while ensuring any investment you make in better systems yields a high return. Rather than get tangled up in business expense reduction, you need to work with a team that can leverage experience gained in multiple channels to help you avoid expensive mistakes and reduce waste quickly.
Each of the cost-cutting strategies outlined above can help you drastically reduce costs in your organization. Most cost initiatives fail because they’re too ambitious, lack a clear strategy, and don’t have buy-in from leadership. If you want to move your organization past dreaming about becoming more efficient, then you need a roadmap that will walk you through how to set a strong foundation for a lean business, succeeding not only at cost-cutting, but also transforming your organization into a highly efficient competitor in your space.
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