Cutting costs without sacrificing quality: Practical tips for businesses
A simple formula determines your company’s profitability. You take your income, deduct your spending, and get your profit. Simple enough.
So, in theory, reducing your expenses would increase your profitability just as much as if your sales increased. In theory, if you found a way to make a product for 50% of its current cost, it would be as if you’ve sold twice as many units. However, is this equation accurate?
Well, both yes and no.
First of all, the benefit of sales is not just in profit. It increases your exposure and sets your customers on a long customer lifecycle, which will benefit you more in the long run.
More importantly, cutting costs usually means sacrificing quality. You can cut costs by reducing your payroll, which will get you understaffed. You can also cut costs by buying materials of lower quality, which would result in a worse product, costing your reputation and customers.
Still, if you could cut costs without sacrificing quality, you would feel like you’re making money out of thin air. The best part is that this is completely doable. Here are a few actionable tips that businesses can start enforcing as early as today.
1. Negotiate with suppliers
If you negotiate a better deal with your supplier, you’ll get the same amount of supplies (potentially of the same quality) while having to invest merely a fraction of the money.
The act of negotiating with suppliers is a matter of art, principle, and strategy. First, you need to make sure that you know your own needs. You can leverage this number (the volume you’re ordering).
Second, ideally, you would wait until you’ve gained enough reputation with this supplier. People love working with the same customers, which means that they might even go a bit under prie to keep you.
Remember that it’s not just about the price. Delivery schedules, warranties, after-sales services, and payment terms may be as crucial as cash payments. The critical thing to remember is that, sometimes, tying up your resources or paying via a platform that doesn’t suit you can be just as bad as paying more.
When negotiating, you must ask yourself how far you will go. Ideally, you would be ready to walk away. Sometimes, getting a counteroffer before sitting at the negotiating table is great. You don’t have to be good at bluffing if you’re not bluffing, and having options always gives you leverage.
2. Start using a budgeting software
Another thing you can do is choose the best budgeting software for your business and actually learn how to use it. This way, you’ll get a firmer grip on your finances and have an easier time managing your spending.
The first major advantage of budgeting software is the automation of budgeting processes. This means you no longer have to spend too much time on manual data entry. You also eliminate potential human error during data entry. With automated reminders, there’s no risk of missing a payment.
Budgeting software also has great scenario planning and forecasting capabilities. Sure, a good accountant can do this, as well, with a similar accuracy; however, it would take them so much time to do it. With a platform, you just click a button and get a real-time projection on-demand. This alone would boost your decision-making by so much.
The more data you feed the software, the more accurate it becomes. It might take a while to adjust the platform to the needs and capabilities of your own business, but with the help of the right budgeting software, there’s so much you can do.
The biggest advantage of budgeting software is your ability to see areas where you’re spending more than you should or more than you can afford. By cutting costs there, you’ll increase profitability without affecting quality.
3. Allow remote work
Comsider switching to remote working. Some of your employees are more productive while working from their homes. After all, if they live alone, have a big home, or have a decent arrangement with their roommates, they could have fewer distractions in a home office.
They’re also likely more productive during odd hours, so they’ll be free to adjust the work day to their schedule and biorhythm. Because they have this freedom and a chance to spend more time at home, their retention rates will slightly increase, which will postpone an expensive hiring process. This is a passive cost reduction that you shouldn’t discard.
People working from home don’t take office space. This means that if you’re on a hybrid model, or if a part of your team is remote full-time, you’ll have to take a smaller office. This means lower rent and lower utility bills.
You’re also not spending money on commute expenses. This is a sizable expense for many companies, especially in areas with poor public transportation systems.
Lastly, people working from home usually use their own devices for work. This means you’ll have to introduce a stronger BYOD policy, but this is not necessarily such a bad thing.
All of this comes from allowing remote work and abandoning the myth that people are always more productive in the office.
4. Outsource all non-core tasks
You’ve probably heard that outsourcing saves money, but you probably believed this claim to be no more than a myth. After all, how could it outright save money? It’s just an agency that counts all the costs (including the initial investment costs) and splits this cost into monthly installments, right?
Not really! At least, not from your perspective!
First of all, you often get to limit recruitment and training costs. These specialized agencies work with the same team for years, meaning they’re well past this stage. It also means they can immediately deliver professional results, which is a huge advantage.
Second, they have all the professional tools available, so you don’t have to bear the brunt of high infrastructure costs. After all, you would probably need to set aside far more money, and when getting tools, you probably won’t go for the high-end items. This means that you would pay more and end up getting less. It is one of the best examples, opposite our topic – spending more and getting lower quality.
The administrative costs of outsourced teams are also a lot lower. After all, you don’t have to manage the team directly. You don’t have to worry about schedules, replacements, overtime, etc.
5. Start cross-training your staff members
Training your team members to work in other people’s positions is incredibly cost-effective and may save you a fortune in the long run.
First, it’s a great way to reduce downtime. Instead of waiting for the replacement, you just get to shift someone else to their position and fill the gap. This way, it’s business as usual, and there’s no loss of time/income. Regardless if someone’s sick or unavailable for any other reason, there’s someone to jump in.
Second, cross-training gives you far more leverage when discussing staffing matters. If a person is the only one who can do a certain job, they have all the leverage. They can blackmail you. After all, finding a replacement won’t be easy, and you might rely on them to train the replacement in question. When you’re cross-training your staff, this will not be present, and everyone will be able to see it.
Perhaps most importantly, by cross-training, you can shift your staff and avoid overstaffing. By avoiding overstaffing, you’ll manage your costs far more effectively. Also, by regularly rotating your employees, you’ll ensure that their skills are always sharp, and you’ll ensure consistency.
Still, bear in mind that setting a salary for cross-trained employees is more of a challenge.
6. Use more effective digital marketing
John Wannamaker once said that while he knows half the money he spends on marketing is wasted, he can never know which half. With digital marketing, this is no longer the case. Here, analytics are precise, and even estimates/projections are highly accurate. Models like PPC are crafted around the principle that you only pay for the marketing you use; this is just one of the examples.
With digital marketing, you can speak directly to people with the highest disposition to become your buyers. This is due to the incredible accuracy of the algorithm and targeting.
You also have the option to set budget control and track performance in real-time. The latter will allow you to introduce changes whenever you feel like it. You can set limits that you won’t be able to cross until you make a new executive decision to override it.
Preserving your quality standards is a top priority, but so is staying afloat
The best thing about cost reduction is the scalability. Once you cut costs, these cost cuts keep on giving indefinitely. This is why it’s so important that you start talking to your suppliers and keeping a bit tighter ship when it comes to your finances. Allow everything that will save you money and doesn’t affect the end product/service.
By Srdjan Gombar
Veteran content writer, published author, and amateur boxer. Srdjan is a Bachelor of Arts in English Language & Literature and is passionate about technology, pop culture, and self-improvement. His free time he spends reading, watching movies, and playing Super Mario Bros. with his son.