High operational costs are one of the most significant challenges businesses face. It directly affects profitability and slows down growth. According to SCORE, 82% of small businesses fail due to cash flow problems, and high operational costs often exacerbate this.
This is not only limited to small businesses. Business insights have shown that high operational costs have reduced the profitability of large corporations, leading to stagnancy.
Whether you’re running a small business or managing a large corporation, you need to implement strategies to reduce high operational costs for your business. In this article, we will guide you into understanding the seven easy ways to reduce high operational costs for business.
1. Streamline Processes with Technology
An easy way to reduce the high operational costs of business is to incorporate technology into automating repetitive tasks, which helps in lowering labor costs, thereby saving the company some money.
For example, implementing enterprise resource planning (ERP) systems like SAP or Oracle helps to unify various business processes, such as inventory management, payroll, and customer relationship management, into a single platform. Having these eliminates the need for multiple software solutions and manual inputs.
Additionally, adopting cloud-based solutions like Google Workspace or Microsoft 365 helps to reduce IT infrastructure expenses. Cloud platforms allow you to pay for only the services you use. The advantage of this is that it helps you to save costs on hardware, maintenance, and upgrades.
2. Outsource Non-Core Functions
Another effective way to reduce operational costs is to outsource non-core functions. Non-core functions are tasks that are not part of your primary business focus. This helps to reduce overhead and operational costs. Similarly, it can save companies from hiring full-time IT staff, which can be costly, especially for small businesses. Non-core functions like customer support, IT maintenance, and accounting can be outsourced.
3. Adopt Energy-Efficient Practices
A study by Statista shows that in the manufacturing industry, energy costs account for about 30% of operational expenses. This is not limited to the manufacturing industry but all other industries that make use of energy. To reduce operational costs, you have to reduce energy costs, and that entails adopting energy-efficient practices.
For instance, switching to LED lighting in office spaces can reduce energy consumption by up to 75% compared to traditional incandescent bulbs. Similarly, you can install smart thermostats to optimize heating and cooling to ensure that energy is not wasted during non-working hours.
Also, in regions with electricity issues and high costs of gas, you can install solar panels to generate energy. Although it might require a huge upfront investment, it saves the business from recurring high energy costs. Moving to cloud-hosted servers instead of maintaining on-site data centers also reduces electricity costs and aligns with green initiatives.
4. Negotiate Supplier Contracts
Another easy yet potent strategy to reduce high operational costs for businesses is to negotiate supplier contracts for better terms, which helps to ensure significant savings. Businesses that fail to evaluate their vendor relationships often miss opportunities to cut costs. Renegotiating your contacts with suppliers can lead to lower prices. Imagine what a 10% or 15% reduction on your supplier contract will save from the procurement costs.
Similarly, explore alternative suppliers to search for better deals. Additionally, consider leveraging bulk purchasing, as it is found to be more cost-effective than buying in small quantities. This is specifically useful for small businesses.
5. Embrace Remote Work Options
The COVID-19 pandemic has shown that remote work is a viable option for many businesses. If your business doesn’t necessarily need employees to be physically present to work, you can try out a hybrid or remote work option.
Allowing employees to work from home reduces the need for physical office space, utilities, and maintenance. Another major benefit of remote work is that it eliminates the need for daily commutes, which can be a significant expense for both employers (transport allowances) and employees.
For example, a software development company downsized its office space after shifting to a hybrid work model. This move saved $100,000 annually on rent and utilities while maintaining employee productivity.
6. Review and Optimize Inventory Management
Effective inventory management prevents overstocking, reduces storage costs, and minimizes waste. You can employ strategies like just-in-time (JIT) inventory that allows businesses to receive goods only when they are needed rather than maintaining large stockpiles, which could lead to wastage.
To reduce manual labor costs in managing inventories, you can use RFID tags or barcode scanning to automate inventory track and keep track of all the inventory.
For instance, a retail business implemented JIT inventory and used predictive analytics tools to track sales trends. This approach reduced storage costs by 25% and eliminated losses from unsold stock. Additionally, a manufacturing company that adopted inventory management software like TradeGecko improved its ability to monitor stock levels and avoid over-ordering.
7. Implement Cost-Effective Marketing Strategies
Traditional marketing methods like TV commercials and print ads can be expensive and less targeted. To save cost on marketing, you can shift to digital marketing that offers a cost-effective alternative with measurable results.
Email marketing is another affordable yet highly effective strategy. You can make use of personalized email campaigns to target potential customers and use content marketing techniques, such as blogging and video creation, to generate organic traffic and leads.
Final Words
It is important you note that reducing operational costs is not just about cutting expenses—it’s about working smarter and allocating resources more efficiently. At Mac Adebowale Professional Services, we specialize in helping businesses like yours identify cost-saving opportunities and implement strategies tailored to your unique needs.
Don’t let high operational costs limit your growth potential. Contact us today at emails@macadebowale.com or macadebowaleadvisory@gmail.com and let’s start building a more efficient, profitable future for your business.
