Reducing costs and improving revenue are two key factors of a successful business that go hand-in-hand. Cutting business expenses will automatically lead to better margins, thus increasing the profitability of a business. However, business owners, especially in the case of startups often struggle to maintain a balance b/w the two as they work with low capitals and narrow margins.
Cost-cutting measures cannot be applied to any process in a haywire fashion. It is a critical function that involves understanding the basic nature of each business expense. Once the understanding is established, cost reduction measures should be analyzed with a focus on increasing business revenue.
All the expenses that are incurred as a part of executing business operations are defined as business costs. There are different types of costs that impact overall business turnover. The two main costs that directly impact the business are discussed as follows:
The other business costs may include Direct, Indirect and Operating Costs.
In a similar manner, it is also imperative to understand what revenue implies for any business. Revenue is determined after fully cutting business expenses from the net income. Hence, the lower will be the business costs, the higher will be the revenue earned for any business.
Business Revenue can also vary in nature and can be categorized as follows:
Discussed below are the most effective cost-cutting measures and ways to increase profitability that any business can adopt:
1. Streamline Production Process
Streamlining production process can enable businesses in eliminating a lot of waste and diminish the cost invested in the procurement of materials. Adopting this change will automatically lead to a decrease in inventory reducing the warehousing and storage costs as well.
2. Eliminate Non–Value-Adding Activities
Cutting down all the non-value-adding components from the value chain can lead to substantial cost saving. Every penny thus saved can directly impact the bottom–line of the organization.
3. Adopt Technology
Identifying the black holes in the administrative processes and prioritizing the use of automation can lead to an optimal bottom – line. Harnessing the power of technology can also result in reduced operating costs by eliminating the need for human intervention in repetitive tasks.
4. Increase in Sales Revenue
The business revenue generated as a result of sales can be improved by increasing the productivity of your employees, manufacturing new but relevant product lines and improving the quality of customer service. However, a large sales order might not particularly result in substantial business revenue. The expenses incurred in production can actually eat a major chunk into the profits. Hence, businesses must get the best deals from vendors without compromising on quality.
5. Hire Smartly
While recruiting people, give consideration to candidates with a wider sphere of skills. For instance, an HR can also look into the administrative tasks of the office, and a content-writer can also be made responsible for PR activities. This will result into optimal utilization of resources and cut down manpower related expenditures.
6. Evaluate your business processes
Seek guidance from industry experts or hire business process consultants to evaluate your existing business functions. Work with them to identify the faulty processes and work on revamping the same. Invest in change management whenever the need be.
Mature businesses are characterized by the ability to maintain a balance between cost and revenue. They become successful only after they understand that none of these factors can be improved by ignoring the other.