Most businesses struggle with cost reductions. With increasing labor costs around the globe, increasing competition, and rapidly changing customer demands, businesses, whether small or large, struggle to keep up with their expenses. In such cases, big companies and retailers set important examples for smaller businesses to learn from.
Reducing company costs remain a top priority and a constant goal for most businesses as it directly affects their profitability and, therefore, their business success. However, as easy as cost reductions may sound, they are really complex. In this article, we will take a look at some important steps that companies can take to reduce their costs.
But before that, let’s first see why a company must reduce its costs.
1. Why do you need to reduce company costs?
Lesser costs simply mean higher profitability. An obvious reason behind companies reducing costs is to have more profits to hold on to for themselves. Fewer expenses means less money is going to be re-invested in business operations such as product manufacturing and marketing expenses. However, this isn’t the only reason why companies might need to reduce costs.
· Better pricing for the customers
The competition in the business market is fierce. A wide range of similar products are available in the market as alternatives, and customers have a wider selection to choose from. With the marketing game-changing with the integration of the internet and evolving consumer engagement tactics, businesses give fierce competition to one another. In such cases, your prices can be your unique selling proposition.
Lower priced products that offer the same quality and performance will always be preferred by customers more. Therefore, reduction in company costs means that you will be charging your customers lesser, motivating them to choose your product over someone else’s.
· Important for small businesses
While bigger, well-established companies struggle to reduce costs, small businesses need to cut down on their expenses. With limited resources and finances, small businesses thrive to increase their profits to avail expansion opportunities in the future.
Business insurances, transportation costs, labor costs, wholesale supplier’s prices are more burdensome for smaller businesses than for larger ones. To remain profitable and expand the scope of their business in the future, small businesses truly need to reduce their company costs.
Read how you can reduce company costs for your own company.
2. Using virtual technology to your advantage
All businesses have some computer needs. In fact, the way the business world is getting influenced by modern technology today has businesses wrapped up around computer needs. From marketing tactics to supply chain management, everything is now shifting to computerized methods. In these times, we highly recommend you switch to virtual technology to cut down the computer costs.
Using cloud-based storage platforms and data analysts will cut down a lot of your costs. You will need a smaller space, or you can utilize the space used up by your computer systems. You can also have virtual assistants take care of essential operations such as scheduling supply and payroll management instead of having actual employees on a payroll basis.
Virtual technology also results in companies having loads of valuable data they can analyze and use for their benefit. Etsy and Apple have switched to cloud computing to ensure profitability and longer-lasting customer engagement. The development of Siri by Apple and the use of e-Commerce websites to store consumer data on cloud by Etsy are a few examples of how big companies cut their costs and benefit from them in the long term.
3. Reducing production and manufacturing costs
For all businesses, expenses related to manufacturing and producing their products are quite high. From buying raw materials to processing the material and assembling it into one product, the whole process is quite costly. Many businesses are now turning to other alternatives to reduce their manufacturing costs.
The latest, most beneficial trend in the market is outsourcing product manufacturing to low-cost production areas. China today is leading the race, with Malaysia and countries like Thailand also taking part in the competition. In fact, China sourcing has become widely popular for most major companies.
Basically, China sourcing is all about availing the low-cost benefits by having products manufactured and supplied from Chinese manufacturers. China has relatively cheaper production costs due to the following reasons:
- Cheaper transportation and shipment costs
- Excellent trade routes
- Lower labor costs
- Use of technologically advanced machinery to produce products in mass quantity
- Currency differences
China is a global seller. Their economy was the fastest growing and is now emerging as the world’s biggest economy. They sell their manufactured products across the globe to companies as huge as Nike and Apple.
Moreover, China has also made its way through all the possible industries you could think of. From mobile phones to solar energy cells, China excels in the production for all these industries. Chinese-made products dominate Even the architectural and construction industry. Around 6.6% of 2017’s cement industry involved products delivered by China. Plus, China has taken Germany’s place in the solar cell industry by supplying over $26.8 billion worth of solar cells in 2017.
Since they’ve been producing goods for the global economy, they have developed their production capabilities accordingly. They have thoroughly time-tested factories that employ advanced technologies such as CAD-based machinery to produce mass quantities of high quality products. Their huge production capacity makes them the biggest supplier of the global economy today.
Due to these reasons, China sourcing, and the dependence on Chinese manufacturers is increasing today. If you’re convinced that your business needs to cut costs, the best, most effective place to start is to reduce your production and manufacturing costs. A China sourcing agent can help you locate the best, most suitable Chinese manufacturer and supplier. The use of trade fairs and e-commerce platforms like Alibaba can help you find the best China-based supplier.
4. Lower your financial expenditures
Before you work on lowering your financial expenses, we strongly recommend forecasting the expenses. Forecasting helps you allocate your resources more efficiently. You can use cloud-based virtual assistants to predict the future expenses or have accounting and financing experts do the job.
By forecasting, you will be a lot more prepared to handle the future and manage your finances much better. Furthermore, you can focus on cutting down labor costs by letting go of posts and payroll jobs that are not needed or do not need a whole separate unit for themselves. Other ways to lower financial expenses is to order supplies in bulk so you can reduce transportation and shipment costs.
Byron Simpson is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance cent.