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Cost Optimization or Cost Cutting?

 With the steady increase in inflation around the world, the overall purchasing power of consumers has declined by a huge margin, making it very difficult for businesses to survive in the market. Is cost optimization or cost cutting the solution for companies to keep on their volume and margin?

Yes, optimization costs is the first natural reaction that comes to the C level mind however what they have to realize is that there are other options out there that can help businesses achieve growth. There are many factors that should be considered when deciding on choosing cost optimization.

Here’s some guidelines on different cost optimization strategies and how to implement them into your business module.

Implement strategy changes

Before you start optimizing costs, it’s essential that all of the transactions that take place during the operation of your business are accounted for. The human resource talent are also assessed to select the best team in the back office and the star sales people that will compete in difficult times.

cost optimizationOptimizing cost based on the next 2 to 3 year business strategy is essential. This will help you analyze the different aspects of your business module and where you can make changes to implement the correct strategy. It is vital that you cut costs in such a way that it does not have a detrimental effect on your business. Here are a few options to guide the C level in the right direction:

  • Time consumption of the operations in each department
  • Assessing the ability and potential of sales people to compete in a tough environment.
  • Their ability to be accountable and their desire to do whatever it takes to achieve success.
  • Balancing between back office and front office while focusing on team building and communication.

Drastically change the cost structure

The cost structure of your business refers to all of the fixed and variable costs. Fixed costs are those costs that do not fluctuate, such as overhead costs – like rent payments – while variable costs are defined as a cost that varies with output.

In order to drastically change the costs structure, you have to consider all of your fixed and variable costs and see if there is any chance of reducing the overall operating costs of your business. For example, focus on your production cycle. See if it is possible to purchase your raw materials from a different vendor that charges less, or reduce the fixed costs by moving the business to another location where the rent is lower.

Meeting the economy of scale

One of the most important challenges to consider is to try to minimize the cost of purchasing to be able to meet the pressure on retail prices.  The economy of scale will be met through re-negotiating the deals that customers will take advantage of because of a better price offering.  Since costs have decreased, you can offer your product at more exciting prices which might help you maintain or increase sales.

Have in mind that not all incremental strategies will get you the desired results, especially if while designing it you don’t closely take into consideration competition, new entrants to the market and parallel business activity that might affect your business strategy.

Redesign or reorganize

This is an important question to ask when deciding on how to implement cost optimization strategies. Many companies fail to execute such strategies as it tends to be difficult to apply a new design in an operating business module.

In order to survive in today’s market, it is imperative that businesses adapt their internal business structure to make sure that they are operating at an optimum level with no excessive costs. First, you have to determine what aspects of your business are ineffective, such as work flows. Then, you have to implement strategies that will improve efficiency in order to reduce costs.

Finally, although the cost optimization strategies given above will help your business survive in today’s market, you have to consider every aspect before determining the effect it will have on your business.  Other strategies such as launching a new product or modifying existing ones might be a better option in your particular case.

In your market, do you experience the effect of optimizing cost on your business growth or has it been too complicated to achieve?

WIN Sales & Marketing Programs provides you with various cost optimization strategies which will help your business run smoothly. Call us @ + 357 2595 4944.

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