5 actionable tactics to achieve cost savings
With this blog post, you will get to know 5 actionable tactics that will help your business achieve cost savings.
Do you know Warren Buffet? Who can miss knowing the octogenarian who eats for McBurgers and multi-million deals for breakfast?
Warren Buffet is a businessman with a sniper-like focus on growing wealth. Although we don’t know when and in what context he said it, there is one popular quote of Warren Buffet that has been doing its rounds on the internet.
“Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.”
If you are running a small business, these rules should be your Northstar. Losing money through unnecessary expenses can doom your business profitability. It’s death by a thousand cuts.
Just like Warren Buffet’s quotes, the internet is also crowded with countless tips on cost savings. The trouble with these tips on cost saving is that they miss taking into account the need for long-term business growth and financial stability. You should not achieve cost savings by compromising on your business’s long-term financial health. There are better ways to do it.
How do I know? As someone who has got his hands greased by handling accounts of small, big and growing businesses, I am certain of some cost saving ideas that can help businesses can save costs the right way.
Read further to know what they are:
1. Keep fixed costs to a bare minimum
Fixed costs are those expenses that your business has to incur and pay irrespective of your operations or sales.
- Software licenses,
- Salaries, etc.
Fixed costs remain constant for a foreseeable future and hence can be forecasted with certainty. Also, these expenses are fundamental to carrying out business operations. That makes it difficult to eliminate them altogether.
Instead, they can only be controlled or kept to a bare minimum. However, not all fixed costs give you this freedom. You cannot negotiate with your property manager to lower office rent if it is in a prime location and has great demand from business owners. So, you have to figure out specific costs whose corners can be cut to achieve cost savings.
A good place to start is enterprise software. As a business owner, you have to provide your employees with the right software tools that will enable them to perform their duties with efficiency. Unlike before, business software does not come in CD-ROMs or as standalone installation packages. Thanks to the rapid proliferation of Cloud computing, Software-as-a-Service has become a popular and good-to-have choice.
SaaS gives you the freedom to sting up for a service and opt-out of it whenever you want to. There are no long-term contracts that require you to pay hefty license fees or AMCs.
2. Don’t use short-term loans to fund fast-depreciating assets
Short-term loans are to tide over difficult times. Like, when your customers do not pay up on time but you have vendors with overdue payments. In other words, they are forms of bridge finance that should not be dedicated to long-term projects or acquisitions.
Here is why. Almost every asset depreciates over a period of time. Take, for instance, the cost of a car you purchase for your company’s staff. The car would depreciate in value faster than you will pay off your loan. Also, you will be paying more than the price tag of the car since the loan will bake in interest in its processing charges into the cost.
The end result would be, you will be paying more for an asset that gives you a negative Return on Investment (RoI). Also, from a business standpoint, it also creates three major drawbacks:
- Negative working capital, since you cannot use the cash for operating expenses
- You do not have liquid funds since it is stuck in a fixed asset that cannot be sold easily too without incurring a loss
- These assets (as in most cases) would be unproductive in revenue-generating operations
The bottom line: Use short-term loans wisely. Don’t burn dollars in the form of interest costs to fund depreciating assets.
3. Automate everything that you can
From invoicing to bookkeeping, there are several processes that you will have to spend your time on. Or, do you have to? The problem with manual processes is that they are error-prone. Despite hiring the best professionals and equipping them with the best tools, errors are bound to happen. It is an inherent human nature.
Manual operations = More errors. More errors = Time lost. And time lost = Money lost.
Also, manual processes are a waste of precious labor since most often it requires data to be recreated or re-keyed in for using it somewhere else. When your business volumes surge, you will be forced to invest in hiring more personnel to keep up with the demand.
It is here that automation can help. Automation can help reduce the dependency on staff, augment business productivity and also result in cost savings.
Take for example, in a call center, calls are often handled by agents as and when they are routed to them. Now call handling is easier when call volumes are manageable. However, during specific situations like calls that come in after working hours or for calls that come on the eve of holidays, it will be too much for few agents to handle all the calls. Skipping calls or putting callers on hold is impossible since it could send various signals to customers.
An automated call routing engine can make life simple in such instances. It can help the call center route calls to agents based on time zones, based on holidays or even based on skills that are configured in the system. That takes away manual call routing and all the drawbacks that come with it.
Most importantly, it saves costs in several ways. First, automated call routing ensures that you can resolve your customers’ queries sooner. This, in turn, saves call costs, especially if you are providing a toll-free number for customer service.
Secondly, call routing evenly distributes call volume to available agents. It ensures that every agent has a healthy time rebound from the previous call before they can get on another call. The end result? Fewer errors. Augmented agent productivity. Better customer service. Although we cannot put an absolute figure to it, it is certain that these benefits add up to sizable cost savings.
4. Embrace the remote work culture
Thanks to cloud services and abundant internet connectivity, remote work has taken off as a mainstream mode of work. And it showers benefits for both sides of the equation — employers and employees.
From an employer standpoint, remote work gives access to a globally distributed workforce. It is possible to assemble the perfect team made of A-players without any physical location barriers. Secondly, it eliminates the need for a physical workspace. This saves rent, office infrastructure, and every other amenity that is essential to keep the workforce up and running.
How does it benefit employees? There is great flexibility since the need to dress up, commute and reach a physical office is eliminated. It saves time on transportation and gives them more personal time. An employee who enjoys a decent work-life balance would be able to deliver better results.
5. Buy office space than rent
Do you know that McDonald’s is not a fast-food chain but a real estate business? Well, here is how it works. A large chunk of McD’s revenues (almost 82%) come from franchisees located all over the world. McDonald’s invests in the physical property and leases them to franchises (obviously) at a great markup price.
Since the property prices inflate over a period of time, McDonald’s is able to reap many times its investment in the property. The RoI is never negative.
Compared to any other form of asset, like cars, furniture, equipment, etc. land and buildings are the only assets that appreciate instead of depreciating in value. For a growing business, this is a gamechanger.
There are several other reasons why it is better to buy office space than rent it. First, it gives you a permanent address out of which the business does not have to move out. Secondly, the IRS, as well as several other tax agencies around the world, offer several forms of incentives to businesses for investing in property. This includes tax deferral as well as cost segregation depreciation.
Alright, I hear you. Most small businesses will not have a deep pocket to acquire a property. But, if you plan it wisely, instead of paying a fixed rent or mortgage on a regular basis, you can pay a slightly higher price as equated installments and end up owning a property. If this does not constitute cost savings, nothing else is.
The Bottom Line
The global economy is always in a state of turmoil. It ebbs and flows like the ceaseless waves at sea. A business that wants to sustain its growth trajectory may have to take cost savings seriously. It is necessary to avoid unnecessary expenses which cumulatively can cost the business seriously. At the same time, cost savings is not the same as cost avoidance. It is the tactical planning of controlling necessary expenses while eliminating unnecessary expenses that would enable the business to do more with less.
So, how is your business going to achieve cost savings? Is there any strategy that is already working for you? Sharing is caring. Feel free to share your thoughts with us.
Illustrations by Mahalakshmi
Freshcaller is a modern-day reimagining of our everyday phone system for customer support, sales, IT, and HR teams. With its cloud-based architecture, Freshcaller brings together the best of legacy features like IVR and advanced call routing capabilities like Smart Escalations, Customizable Performance Reporting to help you set up state-of-the-art phone operations. Freshcaller offers phone numbers in 90+ countries, requires zero phone hardware, and is extremely easy to use.
Visit the Freshcaller web page for more information.
Did you know that optimize your call center efficiency can also help achieve cost savings? Download our eBook to know to optimize your call center efficiency.
Subscribe for blog updates
Thank you for subscribing!
OOPS! something went wrong try after sometime