Controlling Costs to Do More With Less

A wise person once said that no organization ever shrank to success, controlling costs when running your business is an absolutely essential step if you want to see your organization thrive long term. Wasting money has disastrous effects, leaving you with little money left over to spend on the necessities of running a business, such as payroll, inventory, operating expenses, and maintenance. However, wasting money so you don’t have money to invest in a robust future, such as developing new products and markets, means you are in a slow descent into ultimate failure.

Fortunately, figuring out how to control and cut the cost of running your business isn’t as difficult as you might initially imagine if you employ proper methods for tracking where your money goes and what it does. And, this guide contains a variety of different tips and tricks you can use to minimize your monthly spending in no time at all! So, if you’re interested in finding out how you can ensure you’re money goes as far as possible, then simply read on.

Controlling costs

Before we can discuss tactics for controlling costs, we need to understand which costs are necessary and which are wasteful. Reducing spending on necessary elements of your business, except in extreme circumstances, is like cutting off your nose to spite your face — it damages your prospects in the long run. Hiring cheaper labor may seem like a good idea until you realize they are less productive or make costly mistakes. Buying less expensive raw materials seems smart until you start getting returns from customers who find your products unacceptable.

That said, every business faces costs they don’t need, such as paying fees for overdrafts or failing to take discounts because you can’t pay for items within the discount period. I once worked with a company that rushed to bill customers to improve their monthly income statement and then paid workers overtime the next month to produce the goods promised to these customers. Or, continuing a marketing campaign that doesn’t pay for itself just costs money without providing any benefit.

Hence, the first step in controlling costs is to monitor where you spend money and what you get in return, often called ROI or return on investment (in advertising, we talk of ROAS or return on advertising spend since the campaign isn’t responsible for other costs incurred). In the bad old days, marketers didn’t have the metrics to assess ROAS but digital marketing makes it easy to determine which tactics deliver. Another tool that helps with controlling costs is to manage by exception. That means you develop a realistic budget and then track variances from your budget. Pay close attention to those variances to discover which represent uncontrollables, like inflation, and which resulted from poor decisions.

Let’s now move on to discuss specific tactics that can help with controlling costs.

Go green

One of the best methods for controlling costs is to go green, which is good for you in terms of savings and good for the planet. Being more eco-friendly can actually save you a considerable amount of money when you reduce, reuse, and recycle instead of throwing things away.

Choosing to use less energy is an excellent choice to help you save some cash, as energy costs contribute a lot toward your monthly operating costs. An innovative way to cut your energy use is by installing motion sensing lighting, especially if you run a large workspace that uses a considerable amount of lighting and subsequently requires an enormous amount of power. Maintaining equipment according to manufacturer recommendations also reduces your energy consumption. Creating electronic records to ensure routine maintenance happens on schedule and installing beacons to monitor the performance of remote equipment means they operate at peak performance, reduces energy consumption, and means your equipment lasts longer.

Recycling your plastic, paper, metal, and other waste can actually generate an extra stream of income while reducing your costs to haul away waste. For instance, breweries sell the hops used to make beer to farmers for animal feed. A glass company I once consulted with, stores all the misshapen and broken glass by color so it can make new glass items.

If your business has its own company fleet, then why not switch them to electric to save even more money while you help to decrease your carbon footprint? An electric vehicle makes very little pollution in comparison to a gas car, and it’s so much more affordable to charge them up rather than having to rely on the volatile pricing of a finite, non-renewable resource, gas or diesel. It definitely pays to go green, and you can reap the rewards both financially and in terms of consciousness, too – what’s not to love?

Alternatively, you can source a top-quality fleet card that allows you to put caps on spending for your vehicles and other mobile machinery. It isn’t difficult to figure out what to look for in a fleet card, as you can easily find an option that provides you with access to the information and controls you need to start minimizing your fleet spend.

Cut employee costs

The costs associated with your staff are likely some of the heftiest expenses you incur, so it’s tempting to cut employee costs. In fact, this is often the first option considered by companies when funds are tight. Of course, any attempt at controlling costs through employee compensation (both wages and benefits) can have disastrous results. Below, you see results from a recent survey on cost-cutting measures and their impact on employees. The results don’t look good for using employees as your tool for controlling costs.

And, unhappy employees mean unhappy customers, less productive, more waste, and a host of other problems that trickle down to poor performance.

You might think that, rather than reduce compensation, you might eliminate staff. This is another bad idea as the remaining staff must pull double duty to perform the tasks that were completed by the staff you eliminated. Plus, you create a corporate culture where everyone is waiting for the time when they get the ax. Plus, when you face rehiring staff in a more robust future, you may find you have to pay more for new hires than if you retained the existing staff, especially in today’s market where most industries face staffing shortages. You also face lower productivity from new hires as they learn the ropes.

Instead, think of right-sizing your staffing. Removing redundant roles, those where you have multiple staff performing essentially the same function, from your business can save you a small fortune when none spend full time performing their function.  Also, consider outsourcing functions that don’t require a full-time employee, such as payroll or even outsourcing your manufacturing to a company with the specialized equipment needed rather than making the product in-house. These financial decisions are called make-buy decisions and there are formulas to help you make that decision.

There are other ways to reduce employee costs without damaging your output. For instance, if your team is working from home right now or in the future, then suggest that they should provide their own computer or laptop to work on – this can save you a fortune, especially if you have a vast employee base and would have otherwise had to purchase several hundred devices. If you provide meals at work, consider reducing the service hours to spend less on your meal-related staff. Whatever, staff-related cuts you consider, involve your staff in the decisions, making it clear why the cuts are necessary, to reduce the harmful results.

Do more in-house

This is the opposite side of the make-buy decision. It costs money to outsource any function to another firm because you’re not only paying for the function but profit for the outsourcing firm. By doing more in-house, you eliminate their profit from the equation. The more tasks you can tend to in-house, the lower the cost. Again, use the equation to determine when it’s right to bring functions in-house. For instance, you might start out by using an outside firm to handle your digital marketing, as the skills necessary to perform this task well are expensive and in short supply, see graphic below.

You may also find an external agency can spread the cost of expensive analytics and automation tools across multiple clients to provide you with access to the tools at a lower cost than doing it yourself. At some point in your firm’s growth, you may find you can support an in-house digital marketing team and associated software not only because it’s cheaper to hire staff you now need full-time but because you have better coordination and control of an in-house team.

In evaluating your needs and how they change over time, you may find different jobs that you currently outsource without good reason. Many people make the mistake of outsourcing just to get things up and running quickly, but you simply cannot afford to splash out on these unnecessary extras when you’re trying to cut the cost of running your business! Instead of outsourcing your delivery service and having to pay an enormous fee each time you send items out for shipping, why not create your own delivery team that saves you thousands of dollars once your business grows enough to support the service? Look at Amazon with their fleet of delivery vans that not only reduce costs but act as mobile billboards for the brand.

The same goes for equipment. Rather than making the mistake of leasing property, plant, and equipment, at some point it makes more sense to buy them. Of course it’s far more expensive initially for you to actually purchase your current business premises or equipment rather than paying lease fees; but in reality, it makes financial sense over time.

Conclusion

Learning how you and your team can start to gain more control over your costs and start to minimize your spend has never been so simple when you can take the time to utilize some of the brilliant tips and recommendations that have been carefully described above.

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Hausman and Associates, the publisher of MKT Maven, is a full-service marketing agency operating at the intersection of marketing and digital media. Check out our full range of services.