Cost Reduction – Straight to Your Bottom Line

In any business focussing on cost, price and sales volume will dramatically improve cash flow and profit. There are a number of articles in this series on how to improve prices and sales volume but cost control is an ongoing internal matter that all your colleagues should be participating in.

Ask your accountant to create a spreadsheet of all your cost categories. Let’s just pick three: IT, cleaning, raw materials.

Create a spreadsheet with the costs of each of these three for the last year displayed. Now involve your staff in some creative thinking about how each of them can reduce one of those categories by just 1%. Anyone can achieve a 1% improvement but if you asked them for a 10% improvement they would all say it is impossible. But a lot of 1% cost reductions rapidly add up to 10%. This is extra money straight onto your profit.

Let’s start with IT. How much equipment do you have, is it all necessary? Would one monochrome laser printer be more cost effective than coloured ink jet or laser document production. Can you store your information in the Internet Cloud rather than on your own servers. Let the Cloud providers run the virus control eliminating the need for you to worry about that cost. Do you have in house IT personnel, if so would it be cheaper to hire them in on a needs only basis?

Create a Bubble Map of all the ideas your staff come up with then pick the immediate winning ideas and implement these cost savings immediately.

Similarly on your office cleaning bill, when did you last negotiate the cleaning contract or ask for other quotes.

If you are a manufacturer then your raw material costs will probably be constantly under review. But call your production staff together for an ideas session for a morning on how to reduce scrap by just 1%. I did this once on three plastics extrusion lines and hundreds of ideas were put forward to improve efficiencies. Record every idea, then start with the easiest to show some quick hits. This will energise everyone to continue working on the more difficult cost improvement challenges.

If you invite your work force to come up with ideas to just save 1% of costs, improve prices by 1% and sales volume by 1% then profit could immediately improve by 10%. Everyone is capable of seeing a way of improving at least one of these variables by 1%.