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Cost Reduction Ideas

The 4-A's of Cost Reduction Ideas:

There are four factors that must be met in order to achieve success in business cost reduction and profit improvement. Each of the ideas must be:

Available: You must first have the ideas. A number of ideas are your opportunity resource pool

Applicable: Sort the resource pool to find those that apply to your business situation

Achievable: Sort the list again to find those that are achievable and worthy of effort

Applied: Finally, you must implement the opportunity to create results

Success in cost reduction and profit improvement depends on navigating each of these four factors.

In addition to 5 highly effective cost reduction ideas on this page, we offer two more FREE resources to help you succeed:

A Cost Reduction Report with 27 ideas for your opportunity resource pool and

See our BLOG for additional ideas, tools, methods and best practices for getting straight A's in cost reduction and profit improvement.

Contact us to Get your FREE Cost Reduction Report

• The top 5 cost reduction tactics used during the most recent recession
• Plus 22 effective strategies used by client companies for cost reduction and profit improvement to increase their bottom line profits by over $3,900,761 per year
• See what your peers and competitors have been and will be doing to survive
• Receive ideas worth up to $3,900,761 plus weekly newsletter additions FREE
• You can't lose and its absolutely FREE

 

 

Here are five ideas worth over $440,000

$95,000 Savings

Space is an asset until it is no longer producing adequate income. Then it becomes an anchor on profits. Remember that the costs of using space go far beyond rent, lease payments, mortgages, taxes and utilities. Here are four steps to take to see if you can reduce your space costs:

Dig deep and find out what the true cost of ownership is for every space you have.

Review how productive each space is for your business. How much revenue does it support or generate? Retail space is usually measured in revenue per unit space (e.g. $/square foot).

Ask yourself what would happen if we reduced or eliminated this space?

Once you know the answers to #3, see if you can eliminate the space, reduce the space or put it to other productive uses.

One of our clients that did this reduced costs by $95,000 per year and then sold an entire building for a significant profit.

$85,000 Savings

A typical office may have anywhere from 4 to 20 different types and brands of paper in its inventory at any one time. This may not seem to be a significant issue but paper costs anywhere from $0.006 (low-end standard copy paper) to $1.00 (fancy letterhead) or more per sheet when all costs are included.

An analysis for one organization found that the lack of standardized purchasing allowed them to spend about $85,000 each year in extra costs just for copy paper. We conducted the analysis in this manner:

1. Examine purchasing invoices for copy paper
2. Tabulate the costs paid for each quantity
3. Calculate the savings possible if the lowest cost supplier had been used

 

The recommendations were to centralize purchasing decisions and to communicate standardized purchasing procedures to those people who managed the paper inventories at dispersed locations.

The analysis did not determine how much could have been saved if less paper had been used but the qualitative judgment was that the savings could have exceeded the purchasing savings.

$150,000 - $900,000 Savings

How much money are you losing by giving interest free loans to your customers - $150,000 to $900,000 per year? This is a valid target for cost reduction and profit improvement.

Take a quick look at the accounts receivable line on your balance sheet. What is that amount? Now look at the line item(s) on your financial reports that capture your interest payments. Do the math to calculate what your borrowing costs are to carry the amount you are loaning to your customers.

Two companies I worked with, for example, were able to take steps to recapture $150,000 and $900,000 per year respectively by being more aggressive with accounts receivable, more selective with credit limits and by monitoring and managing cash as a “business” within the business.

Reconcile now or pay $600,000

A local law office reported that they lost well over $600,000 to embezzlement by their bookkeeper over a 5 year period. The perpetrator was caught, convicted and sentenced to jail for up to 4 years and to pay restitution of $400 per month for 16 years ($76,800).

There are two primary reasons for reconciling your bank accounts every time a statement comes out.

The reconciliation allows you to maintain the accuracy of your accounting records and those of the bank. The sooner an error is caught, the easier it is to correct.

A bank reconciliation is an opportunity to detect fraud and theft.

Either of these reasons should be adequate so don’t let reconciliations fall through the cracks. Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.

Cycle time savings $110,000

Measuring the time that repetitive operations take from start to finish (cycle time) gives you the opportunity to make better use of time. One business, for example, examined the time it took for customer service to process orders and found that by making several process improvements they could reduce their headcount and save $110,000 per year.

Another business looked at cycle times and found that they could run a number of operations concurrently rather than sequentially and were able to increase productivity and revenues significantly.

It doesn’t matter if you are making pizza or processing an order. Cycle time information is fundamental to understanding the capacity and throughput of any manufacturing or business operation.

Time is money. Time is opportunity gained or lost. Reference “Instant Profits: Making Your Business Pay” which contains examples of how to apply cycle time and time lines for business improvement.

Get your FREE Cost Reduction Report

• The top 5 cost reduction tactics used during the most recent recession
• Plus 22 effective strategies used by client companies for cost reduction and profit improvement to increase their bottom line profits by over $3,900,761 per year
• Plus regular supplements in the "Profits Weekly Newsletter"
• See what your peers and competitors have been and will be doing to survive
• Receive ideas worth up to $3,900,761 plus weekly newsletter additions FREE
• You can't lose and its absolutely FREE

 

 

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