No company can totally avoid the impact of increasing costs. But there are strategies that can help companies remain profitable while keeping their customers happy.
When the cost of doing business rises due to factors, like supply chain constraints, labor shortages, and inflation, customers often bear the brunt as companies frequently raise prices to cushion the blow.
However, there are strategies to control costs, keep prices in check, and keep customers happy. Here are 10 business strategies to consider.
Business strategies to control costs
- Use technology to automate
Inefficiencies can cost organizations 20-30 percent of their annual revenue. But the right technology makes you more efficient by processes with automation.
Automation removes manual input while helping avoid errors that cost you time and money. For example, flexible ERP software helps you manage and automate inventory, warehousing, and manufacturing processes from one platform. When using technology to automate, here are a few things to keep in mind:
- No company can totally avoid the impact of increasing costs. But there are strategies that can help companies remain profitable while keeping their customers happy. counts and inventory tracking for better inventory management
- Production tracking and capacity projection to simplify manufacturing processes
- Purchasing and vendor management to improve purchasing accuracy and warehousing
2. Track and measure operational efficiency
Operational efficiency is the ratio of input costs like labor and equipment to outputs (revenue). Calculate it by dividing operating expenses by total revenue. A lower ratio means you’re more efficient at utilizing inputs to generate revenue.
By tracking the ratio, you can identify whether it’s trending in the right direction. If it’s increasing, consider conducting an audit to see what input costs are increasing and why. Then, make adjustments.
For example, if inventory management costs are high, it may be due to a lower inventory turnover. You may need to level up your inventory management by moving away from spreadsheets and investing in software that automates inventory management.
3. Diversify your revenue streams
Diversifying revenue can help you better utilize inputs to increase operational efficiency. For example, if you manufacture electrical components, you could expand product lines to build chargers and cases. Or, if you offer warehousing, you could expand services by also providing distribution.
4. Consider the value of your space
Consider the cost of space and how to maximize its value. Downsizing is an option if you don’t need extra warehouse space. A larger warehouse is a consideration if you’re growing.
But, before deciding, determine if the extra space is worth the investment. Are you using the current space to its fullest? Are there ways to improve your warehouse management first? For instance, different pallet storing methods can help you make the most out of square footage to optimize operations.
5. Review your budget
Your budget should account for all income and expenses, like software costs. Regularly review it to identify where you’re overspending and cut back as needed.
For example, your existing inventory software may be costing you more than budgeted because of hidden costs. In that case, consider looking for an affordable alternative.
6. Buy used equipment
Buying used can be gentler on your wallet than buying new. However, the wrong used purchase can lead to expensive repairs over the long term that cost more than buying new. So, do your due diligence and buy from reputable dealers.
7. Purchase in bulk
Purchasing in bulk helps you get volume discounts. You can transfer these cost savings onto customers. How much you transfer will depend on the quantity bought, the volume discount, and your desired margin.
8. Implement cost-reduction policies
Having cost-reduction policies establish formal expectations around cost-cutting, increasing the odds that employee will follow them.
For example, you could have policies around saving energy, including turning off electrical appliances when not in use and switching off lights when leaving an unoccupied room.
9. Compare and merge insurance
Keep your current insurance provider honest by shopping around—and if you find a better deal, ask them to match the rate.
You can also review your current policy and reduce coverage if over-insured or merge policies to get a discount.
10. Market strategically
Marketing strategically is as important as marketing consistently. Don’t try everything under the sun; you’ll spread your resources thin and waste money.
Instead, double down on techniques that work—especially if they’re cheaper than alternatives. For example, if networking helps you get more leads than investing thousands in paid advertising, focus more on it.
The bottom line on controlling costs
Rising costs of doing business do not have to lead to price increases. You just need to implement the right cost-control strategies.
This post explored 10, from using technology and tracking operational efficiency to diversifying revenue streams and marketing strategically.
The only thing left to do is to take action. What cost-cutting strategies will you use?