Cost optimisation

Improving your bottom line and business value isn't just about increasing your revenue, but also strategic cost reduction initiatives where possible. A reduction in direct costs can result in a dramatic and continuous growth in your company's profit on each sale while eliminating unnecessary business overhead. Regardless of your industry, the following strategies will help boost your company's overall performance and efficiency.


Lower the cost of purchases

Reducing your spending on raw materials, components, or employees who work directly on output will significantly impact cost optimisation. The key, however, is to ensure you can still supply and maintain the quality and service your clients expect. Categorising any cost linked to both supply and demand can help companies prioritise their cost optimisation program. So, list each direct cost from the highest to the lowest, select the top ten and then put this program in place:

  • Identify cheaper sources across your supply chain.
  • As you focus on your supply chain, ask your existing suppliers to renegotiate deals, offer early payment discounts, or review more favourable terms. If you haven't queried supply costs for some time, it's never too late to ask. This can be especially relevant for technology-based services such as internet hosting and telco services (which experience a cost reduction each year).
  • Buy in bulk, which often comes with a volume discount. Then consider where you can streamline expenses through larger but less frequent purchases. 
  • Switching out one ingredient or component for greater cost-efficiency is an option your clients may not notice or mind.
  • Identify which of your products or services offer the slimmest margin for your business. Then, investigate if there is an alternative way, such as outsourcing supply or the use of contractors on an as-needed basis.
  • Change your product mix and stop selling the things that are expensive to maintain or produce. If you focus on selling items that cost less to make or deliver, all things being equal, you'll see a growth in savings.
  • Achieve more significant savings by using any group discounts from chambers or industry groups. For example, association membership often provides supplier discounts to secure rates beyond the buying power of individual businesses.
  • Look offshore to see if importing products or services will lower any direct costs. 

Cost reduction

At times, it's possible to lower your overhead while still operating effectively. Like reducing your spending on purchases, rank your most expensive costs in order and then start working your way down, applying tactics to promote continuous, sustainable cost-savings in areas where you can achieve the greatest reward.

Companies should consider implementing these strategic initiatives into their cost optimisation programs:

  • Sub-contract instead of having full time overhead. 
  • Delete a product line or service if it's sold infrequently and is expensive to maintain or hold, for example, extra warehouse space, dedicated employees, or machinery that needs replacing. 
  • Audit your company operations to spot wastage from an inefficient process, shrinkage from theft, or poor consumables management.
  • Switch manual processes to digital operations to cut down on things like paper, printing and stationery, labour and the cost of inefficient workflow. Ask yourself: where could you potentially streamline your business through digitisation or automation?
  • Pinpoint inefficient costs such as cutting down on energy expenses or eliminating evident overcapacities, such as unused phones, subscriptions and computer equipment.
  • Measure the impact of your advertising programs and the return on your advertising spend. What may have yielded in growth in the past may not be providing the same value it once did, and your marketing budget could perhaps supply greater business value to your company if used in other channels with a more strategic approach. 
  • Get smart about your tax bill by claiming everything you can as an expense to reduce the amount of tax you have to pay. Work with your accountant to understand what you can claim and ensure you keep all necessary documentation (good accounting software can help with this).

Refinance to lower costs

Find out if it's worthwhile to re-finance or amend how you bank. It pays for businesses to keep an eye out for deals that would better serve their bottom line. If you're unsure, check out our range of business finance options. Another strategy would be to talk to your banker, accountant or financial advisor about whether leveraging house equity or selling other assets may be a better way to refinance other debt. Business loans generally have higher interest costs than your equity, so using personal cash to pay off debt may work out to be a more economical strategy, long-term.

Use innovation to track and measure

Implement online accounting software to monitor your budget, track your payments and provide essential data and critical insights into your financials well before tax time. Put robust management programs in place that are frequently checked. Such as regular cashflow forecasts, clear payment terms and a payments process using an online banking platform so that you can catch operational inefficiencies early. 

Call on your advisors

Lean on the expertise and resources of your accountant or business banker for support. They can help keep you accountable to financial targets, provide insights into any critical areas and give you systems and benchmarks to keep you on track. Regularly taking the time to review processes and activity within your business can help your cost optimisation program while still maintaining your brand integrity and the quality of your service.

Next steps:

  • Benchmarking your business against similar companies in your industry may show that your business performance is sub-standard. For example, discovering insights that your wastage levels might be higher than the industry average is an opportunity to implement strategic cost-saving initiatives and to set goals.
  • Talk to your staff and get them involved in ways to optimise costs. You might be surprised by their insights. Give your team an incentive to suggest cost-saving ideas and ask what causes them problems or wastes their time. Employees are more likely to work towards your cost-control initiatives if you explain the reasons for changes and the business performance-related benefits.
  • Partner with any bulk buying groups if available.
  • Contact your banker, or if you like, enquire online or visit a branch. Or call 0800 272 222 to find out more about cost optimisation solutions to help ensure the sustainable future success of your company's performance.

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