Costs Down, Profits Up

Keeping costs down and profits up seems simple, but if it were easy the lives of business people would be a lot less stressful.

For instance, you've cut staff levels so much that further surgery would impair the company's ability to function. Yet, more fat must be trimmed if margin improvement and profit growth is to be achieved. Alternatively, you're planning the sale of a company at a price of 10 times earnings. Every $50,000 in cost savings would lead to an increase of $500,000 in the price the company would fetch.

So kick back and relax - help is available. And in most cases, it is a win-win situation.

For example, have you ever felt so lost on a cost reduction project that you decided to give up? There are probably a few of these projects suffocating at the "bottom of your to-do pile." Now's the time to consider outsourcing these projects to someone whose job is to find savings.

As areas in which savings can be made become less obvious, companies are increasingly turning to cost management specialists. Not only does this allow management to focus on those core areas of business development where they can add the most value, but also specialists do an excellent job of finding savings for the very reason it is WHAT THEY DO all the time. Some less obvious areas to look at may be telecommunications, not your long distance bills only, but data delivery over your Wide Area Network or if you're a retailer, how about point-of-sale transaction fees for credit and debit cards.

Businesses can get help in cutting costs, particularly overheads, in parts of their businesses where savings may previously have been seen as too small to bother with.

Sometimes companies do not co-ordinate purchasing, so different departments use different suppliers for the same product and miss out on savings through bulk buys. Such practices often go unchecked because the time it takes to monitor this is a valuable resource.

Overcharges are often the result of many apparently insignificant price increases over a long period. The cumulative affect of regular price increases can be significant as is the resultant impact on hard earned profits. Many suppliers do not adjust their pricing although their operations are running more efficiently. For example, with high-speed networks accelerating from go-kart to formula one speed, some suppliers are reaping profits due to increased operating efficiencies. Oddly, we haven't seen the slightest effort to decrease pricing of their goods or services. Why would they? It results in more profits for them.

Real savings are often referred to in dollar terms or percentage of reduction in a particular expense category. However, more often than not, a re-examination of your purchasing in a particular expense category can bring faster access to current technology, an improved customer service level, and a greater flexibility of options. These efficiencies bring soft-cost savings and added value in addition to directly improving your profitability.

Greg Lathem is an expense reduction consultant with Expense Reduction Analysts International. Greg is a regular contributor to businessmatch-maker.com.