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How To Cut Costs

I’m sure you’ve been having a good look at costs lately so here are a few things to consider.

1) Better control your cost of customer acquisition. The first step to controlling anything is to measure it. See how to track the most important marketing KPIs.

2) People are always the biggest cost; having said that the causes of efficiency in organisations are many and varied. The best organisations embrace continuous improvement and will show a lower ratio of people costs to sales, as well as pay the best wages. You should always benchmark important numbers against industry standards. For professional services firms you need to measure utilisation and gross profit by staff member, team and practice area. Once you know your businesses’ ratios, and how they compare, you can begin to manage it. It’s when you look at costs this way that you realise trying to control costs by reducing the spend on stationery, or chocolate biscuits, is a total waste of your time.

3) Automation and smart systems offer some great ways to increase efficiency. Used wisely they can not only reduce staff time but also remove errors. Just look for the biggest spreadsheets and you’ll soon see areas that are probably inefficient. The secret to these types of improvements is to resist changing everything at once, it’s far better to do them one manageable step at a time. Just remember that reducing costs this way is a long term strategy.

4) We are currently in the midst of an IT revolution that is having, and will continue to have, profound effects on IT costs. Cloud computing is here and the old days of server rooms and associated IT nerds is coming to an end. Modern IT nerds are out amongst the frontline staff and helping drive efficiencies.

5) The previous two points involve substantial risk, management time and energy and cash up front. Often a better way to go is to outsource complex processes and systems and to stick to your knitting. It’s often substantially cheeper.

6) Don’t focus too hard on the small stuff, controlling costs should be about making your business more efficient, not trying to inflict some sort of symbolic punishment by austerity. If people are working hard, help them do it, if they’re not, address the performance issues. For example some great companies supply food for lunches, it doesn’t cost that much. On the other hand, crazy expensive restaurant lunches usually don’t give good sales bang for buck.

Make sure that you have a good way of tracking and periodically reviewing costs in your accounting system. If you’re the boss, make sure you log into Xero and have a look about at least once a week. Run a P&L and click on anything that you’re unsure of. One of the biggest benefits of Xero I think.

 

Photo by Michael Dziedzic on Unsplash

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