Cost Reduction Strategy

4 Cost Reduction Strategies That Will Grow Your Profits Exponentially

Both small and large organizations tend to struggle with a high operating cost. The issue is perhaps more significant for new businesses that are not bringing enough revenue to balance their cost of operating. Employing cost reduction strategies like those below will help you increase your profits dramatically.

Of course, managing to reduce your costs is easier said than done. There are a lot of expenses that you simply cannot avoid. It is a lot like when you get your paycheck at the end of the month. You plan to save at least some portion of your earnings but a few unprecedented expenses later, you are back to square one.

Managing the operating expenses of your business is not too different from this. However, with the right cost reduction strategies in place, you can still bring your operating costs and run a profitable business.

4 Cost Reduction Strategies That Can Help

While it may seem like common sense, there are number of easy actions you can take to reduce your business expenses. Some are obvious, but others are not so. Be sure to try to think “outside the box” when looking for cost reduction option. Following are 4 suggestions to get you started:

Strategy #1: Encourage Remote Working

A lot of businesses hire remote employees because it helps reduce the cost of additional office space, new office equipment, and utilities. If you are looking to expand your team in a cost-effective manner then you can consider hiring employees to work from remote locations as well.

Of course, remote working can create challenges in employee onboarding, communication and discipline. However, these are usually initial hiccups. Once you are able to establish a system for your remote employees, you can help reduce a significant amount of costs in the long run.

Strategy #2: Improve Your Negotiation Skill

Small businesses often incur high operating costs because their suppliers charge too much for the raw material required. This is usually because of a lack of trust between the company and its supplier. You must establish better payment terms with your supplier and negotiate the cost of the raw material provided.

Of course, this shouldn’t involve a compromise on the quality of the raw material. Instead of paying extra, you must develop a mutually beneficial relationship with your suppliers. Gaining their trust is very important in this regard. If your suppliers see your business as a profitable venture, then they are more likely to bring their costs down.

You must convince them to consider building a long-term relationship with your company. Improved payment terms can also help improve your cash flow and increase the overall profitability of your business.

Better Prices from Suppliers | Cost Saving Purchasing Tips

Strategy #3: Manage Fuel and Traveling Costs

Business travel can cause your operating costs to go up by quite a bit. While unavoidable, you can always cut down the unnecessary expenses associated with traveling for business events.

For instance, you can consider booking flights that take you to a small, regional airport instead of a major airport hub. These cost less and can help you save money on traveling. You can also develop a travel itinerary ahead of time and book your flights in advance. Plane tickets will be cheaper in this case.

Booking at the last minute will automatically result in a price hike. You must also consider whether it is necessary for you to travel at all. For instance, if you have to meet a valuable client or vendor, then you can consider flying out and meeting them in person.

Otherwise, consider having virtual meetings via Skype, Web Ex, and other digital resources. This can help save both your time and money and is an effective way to reduce your costs.

And finally…

Cost Reduction Strategy #4: Consider Investing in Technology Solutions

I know what you’re thinking; “aren’t cost-cutting and investing at the opposite ends of the spectrum?” You are correct in thinking this way. They are.

However, investing in technology works a little differently. You will incur a high cost in the beginning, but the use of modern technological solutions can increase the efficiency of your operations. This can bring your operating costs down eventually and help you produce more output.

This cost reduction strategy is particularly effective in the long run.

One of the most promising technological solutions available right now is cloud computing. They help reduce your capital costs and can also bring down your day-to-day expenses. Thanks to cloud computing, you do not need to purchase expensive servers. You can access more bandwidth and storage. Cloud computing also resolves issues related to data recovery. This can help you save a lot of money otherwise spent on maintaining servers and recovering lost data.

To Sum It Up

There are several strategies you can use to reduce your costs. In order to effectively implement a cost reduction strategy, the top management must establish cost-cutting as an organizational objective. They must also provide a plan for cost reduction.

Cost Reduction Strategies Infographic
Click to see the Infographic

A lot of managers only tell their employees about how much they need to cut. They do not work out a plan on how this is going to happen. As a result, cost reduction gets limited to being an objective that was established at the beginning of the month. There is no strategy communicated, and thus, there is no implementation as well.


Need more advice on implementing a cost reduction strategy? Get in touch with Kevin A. Nye and gain access to value-based consulting solutions that can help grow your business! Call (909) 264-9447 or drop an email to info@kevinanye.com to discuss your business needs.

Kevin A. Nye

A veteran of multiple industries, Kevin A. Nye has parlayed more than 20 years of management and leadership experience into a consultancy designed specifically for the benefit of small businesses. Having served in roles in Supply Chain, Operations and Regional management, Mr. Nye was most recently the Chief Operating Officer of a regional steel company and is currently focusing his expertise to help small business owners create the organizational foundation required to grow their enterprise.

Comments