Four tips to reduce costs and boost your profitability
Updated: Nov 19, 2021
The success of any business is dependent on its ability to continually generate profits. Profits are generated when a business’ revenue exceeds its expenses. This is important to businesses because profitability can have an impact on securing financing, attracting investors, and funding its operations to grow business.
Profitability doesn’t only come from the sales numbers, and a profitable business isn’t always the one with the most customers and the highest sales.
When business is booming and sales are soaring, it can be really easy to lose sight of the numbers and assume that your business is profitable. However, it is just as important to account for the money going as it is the money coming in. That’s why regularly reviewing and cutting unnecessary costs is one way of boosting profitability.
Most business owners don’t know where to start, if you’re one of them, it’s ideal to start by performing an internal review of your finances to identify where all your business’ money comes from and where it is spent.
Let’s take a look at some areas in which you can reduce costs.
Tip #1 – Address material costs
Sellers of products are most concerned with their raw material costs. That’s why increasing profitability can be as simple as lowering manufacturing and/or development costs. You’d be surprised at how much this move can make towards making your business profitable.
Tip #2 – Manage expenses
Many businesses are overpaying for marketing. For example, hotels may work with a variety of travel agencies even though only a couple of them may be bringing in the bulk of the bookings. In that scenario, it may be a good idea to drop the non-performers.
The same principle applies to all other expenses and services. If you pay for things and they don’t end up improving your business or what you offer, these may be expenses worthy of the chopping block. Needless to say, this would affect your profitability directly.
Tip #3 – Reduce labour costs
Is there something in your business that you can replace with an automated system?
Have you considered hiring a virtual assistant as opposed to an on-site assistant?
Reducing the amount of money spent on wages can also boost profitability when you draw the line on your finances. So, evaluate the daily tasks that your team members perform and look at some of your own duties as a business owner too.
Are there tasks that could be delegated to free up time; time that would be better suited on other tasks to grow your business?
In today’s environment, outsourcing is one of the best ways to cut costs. It’s also one of the smarter ways to hire as you may have access to a wider pool of experts. Properly executed, you can lower costs and maintain a high level of quality with outsourcing.
Tip #4 – Get better deals
Many industries work with vendors, which happens to be a great area to look at if you want to boost profitability. You may already know that it’s possible to renegotiate vendor contracts, through its easy to be put on the back burner. Getting better deals, however, doesn’t always have to involve other vendors as you can also leverage your relationships with existing ones.
Cut costs smarter, not harder
You don’t have to make massive cuts in every area of your business. Even small amounts add up to significant savings if you make enough of them here and there.
If you would like more information on reducing costs, please get in touch for a chat with our friendly team.