What benefits does cost optimization bring to a company?
A well-executed optimization naturally results in lower operating costs for the company. You can use the money you save for a wide variety of purposes – what you can achieve in this way depends on whether you can effectively optimize costs. What is worth thinking about first?
- Invest in growth – you can use the money you save to further develop your business. New equipment, replacing computers in the office with more powerful models, expanding the fleet of vehicles – the possibilities are limited only by funds.
- Make sure to upgrade your skills – one of the most important assets of a company are the people in it. Use cost optimization funds to send employees to training and improve their professional skills, thereby increasing their efficiency – the value of highly skilled employees cannot be overestimated.
- Hire new people – opening a new position is always an opportunity for the company, but it comes at a cost. Thanks to optimization, there will be no need to seek additional funds to expand the team with another specialist.
- Invest in advertising – Internet advertising is a cornerstone and an opportunity to increase business, but it also comes at a cost. Extra zlotys for advertising can, if well spent, increase the visibility of your product, service or brand.
- Create a financial cushion – if your company does not already have one. The funds that cost optimization will bring to the company are worth using for this very purpose. Evaluate for yourself the risks facing your company’s industry. Remember, however, that something unforeseen can always happen, and setting aside funds for a “black hour” is often a good idea.
These are, of course, only examples, and they could be multiplied. But what’s the use of knowing what to spend the money on if you don’t yet have a surplus? So instead of dividing the skin on the bear, let’s consider how to prepare the company so that cost optimization in the company can bring tangible benefits.
How to prepare for cost optimization?
Planning to optimize company costs should begin with an analysis of them. It is not enough to guess that any one area is consuming too many resources. Even if this judgment is correct, without a fair and thorough analysis, we may end up overlooking elements that are even more resource-intensive.
It is worth emphasizing at this point that cost reduction in a company is a risky process – badly carried out it can be counterproductive.
One of the cardinal mistakes companies make in terms of cost optimization is setting unrealistic goals. In an effort to meet management’s expectations, those responsible for implementing optimization efforts can get caught up and cut budgets in key areas of the company’s operations, slowing down their efforts, in effect torpedoing optimization attempts.
So what to look for when planning cost optimization?
Cost structure
First of all, it is necessary to analyze the cost structure in the company – this will be the starting point for further actions. It will also be good to study margin levels (1.., 2. and 3rd degree).
Profit analysis
The next step on the road to effective optimization should be an analysis of profits – it is necessary to check which areas in the company generate the least of them in relation to the costs incurred. By the way, it is also worth verifying which elements produce the highest profits in proportion to costs – this will help answer the question: what after optimization? How about investing in the development of these very areas?
Contracts and suppliers
Next, it is worth looking at the existing contracts – a thorough analysis of the terms on which they were concluded and a comparison with the current market situation (including the offer of competing suppliers) opens up the field for renegotiation of contracts. If there is a lack of openness on this subject on the part of contractors, it is worth considering terminating some contracts and entering into new ones on preferential terms.
Opportunities and risks
In theory, any area in a company can be subjected to cost reduction – but often the potential risk is too great. If you decide to cut expenses to look for savings on production materials, it may affect the final quality of the product. If your customers value quality, they will stop buying or start voicing their dissatisfaction loudly. As a result of such optimization, the company may lose, instead of making it easier to attract new customers. In turn, these losses can be both financial and reputational. In view of this, is it worth optimizing costs? Yes, but such an important stage of preparation should not be overlooked in the process.
5 ways to optimize costs in your company
Ways to reduce the cost of operating a business are plentiful, but which ones will be appropriate for your company at any given time will only become apparent during the analysis. Here are some optimization ideas that are worth reviewing – consider them as a starting point from which you can begin optimizing a particular element.
1. Bet on process automation
The introduction of computer programs and robots that monitor some of the processes and are also able to execute them (once programmed) can significantly reduce costs, but also minimize the risk of error and increase process efficiency. An example of such optimization could be the implementation of a robot that tracks shipments or monitors order processing steps.
2. Take advantage of outsourcing
Not everything in the company has to take place on site. Using outside companies is the norm, and can often significantly affect costs. Just as the smallest companies use an accounting firm instead of maintaining their own accounting department, you can outsource supplies, production and even recruitment. Although outsourcing costs money, the final tally can be favorable.
3. Reduce fixed costs
Leasing and renting are very popular among entrepreneurs for good reason. Small and medium-sized businesses rather rarely have the need to own cars, machinery and buildings outright – the use of renting and leasing provides companies with flexibility and the ability to adapt quickly to changing conditions. This was brilliantly demonstrated by the coronavirus pandemic in 2020 – office buildings were deserted, and companies that owned buildings on property still had to maintain real estate.
4 Enter electronic workflow
Giving up traditional documentation is not only saving paper and toner in printers, but a powerful organizational change, resulting in, among other things. putting documents in order. This way, employees do not waste so much time cataloging and, above all, searching for information – once in place, the system makes working with company documents significantly easier.
5. Try to reduce the occupied office space
In the era of hybrid work, reducing office space has become an important trend. Many offices that were previously bustling with activity are now receiving only part of the team. Proper organization of office space (e.g., determining the days on which certain teams occupy the office) will make it possible to give up part of the office, and thus clearly reduce costs. The difference will be particularly noticeable for companies occupying several floors in office buildings. Giving up one or two floors is a massive savings for the company.
Summary
The ways mentioned above are just suggestions – practical tips that you can use when trying to optimize the costs of running a business in 2023. Finally, I’d like to leave you with the most important piece of advice: the company’s cost optimization process should be constant or at least repeated periodically. It’s a good idea to analyze your finances from time to time – that way you’ll react quickly enough when an area of your business needs immediate optimization.
