Usually, my messages are about sales and driving the top line of your business. However, this time I want to talk about something different. And this is task I undertake at the end of every quarter in each of our businesses. I review our costs.
I always find £000s of savings a month!
You would think that with this focus, you can avoid ‘cost creep’, but when you are moving at pace, driving businesses forward, scaling what you do, it’s really easy for ‘bad costs’ to find their way into your business. Remember, your staff will never care about your money as much as you do, and despite their best intentions, they often are reluctant to challenge the status quo, or exclaim ‘HOW MUCH’ when purchasing from a new supplier.
Every now and then you find an absolute nugget – here’s a couple of examples.
In our slimming business we have recently employed a supervising pharmacist. It has given us two significant benefits. 1) we can purchase better, saving hundreds of thousands of pounds and improving our gross margin. 2) we are recognised by Facebook and Google as an online pharmacy and can supercharge our digital marketing activity. It’s not often, your search for cost savings comes up with a multi-benefit solution, but if you are not stepping back and looking on a regular basis, you are not going to un-earth the opportunities.
Looking at the P&L, we saw that we were spending £2k a month, on moving IT kit around the country. New starters, replacement equipment, kit back from people leaving us. That’s £24k a year! Co-ordinating activity with our IT support provider and the courier has halved that cost. I am going to take that £12k and add it to the increased digital marketing budget!
So, what are some of the key areas to look at? Here’s a couple of suggestions to get you started:
PEOPLE:
Payroll is often the biggest cost in most businesses. Have a good look at your people. Do you need them all? Can your customers be serviced with a lower cost resource? Who are the star performers you want to protect and who, frankly, could you do without? Check your contracts of employment. Many of them have a clause called Short Time Working. This allows you to reduce hours or layoff staff for a period of time, in order to protect the business.
SUPPLIERS:
When was the last time, you renegotiated your prices? I suspect, at least a couple of years ago! Not only will this reduce costs, but it will improve your Gross Margin, without putting prices up.
OVERHEADS:
Cleaning, Rent, Travel and Subsistence, Telephone – just pull out your latest P&L and challenge every cost.
It’s not easy, particularly when you are making tough decisions about colleagues, but you have a responsibility to both yourself and the business to be a profit hunter.