Reducing Costs To Boost Profits

Friday, October 20, 2017

One of the big secrets of multinationals is their continual desire to become the lowest cost producer in their field. These low costs feed straight through to their bottom line and is a technique that can also be used by small businesses.

A lower cost producer is also better placed to be more competitively priced or “price differentiated” in the market place.

Often the stumbling blocks for businesses wishing to become a low cost producer are knowing how and where to “work smarter” to achieve their goals.

The aim is to be more efficient in order to widen the gap between the cost of production and the selling price of the goods or services and by so doing increase the profit margin.

When looking at costs, it is important to consider the processes applied as well as the inputs to the business. Measuring costs to determine breakeven points on products and profitability is essential.

Some of the key areas to consider when striving to become a low cost producer include overheads, inputs such as raw materials and components, human resources, research and development and technology and outsourcing.

It pays to shop-around. Be sure to get new quotes regularly, whether it be for raw materials, office supplies, advertising or the basics such as telephone, internet and electricity.

Even prompt invoicing would help reduce the amount of capital tied up in outstanding accounts.

Many businesses find they are too busy to keep an eye on cutting costs. But for those that do, the benefits can be significant.