Reduce Your Operating Costs with 5 Strategies
At a Glance
Operating costs, including day-to-day expenses such as wages, rent, utilities, and administration, can directly affect profitability and resilience. Businesses can reduce these costs without compromising quality by implementing ERP systems, renegotiating vendor contracts, outsourcing non-core functions, restructuring teams, and improving customer service processes through automation and smarter workflows.
Operating Costs in Business
In the current economic climate, many businesses are struggling to manage their expenses, particularly operating costs. How you manage your operating costs shapes how well your business grows, innovates, and resists through the ups and downs of the economy.
Reducing your operating costs doesn’t always mean budget cuts. It can also mean investing in systems and modifying processes to lower your operating costs without affecting the quality of your product or service. This can be difficult only if you don't know which strategy to apply.
In this article, we’ll help you understand operational costs in business and explore five practical strategies to trim them.
What Are Operating Costs?
Operating costs are all the expenses related to the day-to-day running and maintenance of your business. These include rent, wages, utilities, supplies, maintenance, administrative, and insurance expenses. Some expenses are fixed, while others are recurring, and they continue to accumulate whether your business completes a single sale or a thousand.
In business terms, operating costs are calculated using the formula:
Operating Costs = Cost of Goods Sold + Operating Expense
Your business can’t run without covering your operating costs, and if not managed properly, they can eat into your profit. This is why businesses strive towards lowering their operating costs and keep revenues in check.
5 Ways to Trim Your Business’ Operating Costs and Expenses
Here are 5 strategies that can help your business save money.
1. Integrate an ERP System
An ERP (Enterprise Resource Planning) system can play an integral role in helping businesses lower operating costs. A business ERP connects your core operational processes and provides insights into your operations. Because it brings multiple business processes and workflows under one centralised system, it can reduce the need for having multiple business tools and software. You can manage multiple tasks from a single dashboard without paying for separate software.
Many modern ERPs offer automation capabilities that can reduce time spent on repetitive administrative and reporting tasks. Your teams can use this time for more important tasks involving strategy and innovation. ERP systems also generate information and insights that, when implemented, can optimise existing processes and further lower costs.
2. Negotiate with Vendors
Every business needs to improve its vendor relationship management. It’s a good idea to review vendor contracts regularly to ensure you’re getting the most value. This exercise may help you identify pricing and contract terms that can be renegotiated. It may cover payment terms, discounts, services, and delivery.
For example, if your Northamptonshire business owns vehicles for daily operations such as deliveries and pickups, it may be fruitful to review agreements with your local garages and MOT centres. You can secure long-term arrangements for services such as Northampton MOT testing, repairs, and routine servicing in your favour through negotiation. Longer contract terms give vendors the confidence that you're seeking a long-term commitment, and they can offer competitive prices, potentially lowering your cost per vehicle.
3. Outsource Business Functions
Outsourcing your business functions is another practical strategy to trim your operational costs while improving productivity and customer satisfaction. This strategy lets you access high-quality talent without the added employment and administrative expenditures associated with a full-time hire. Common business functions that can be outsourced include HR, CRM, digital marketing, advertising, and manufacturing.
Third-party services are more likely to offer end-to-end operational support. For example, if you’re looking for an enterprise cloud solution, moving to a managed service can significantly improve the overall support experience with a team managing everything from troubleshooting to backups. Outsourced processes are more likely to use best-in-class tools and methods, leading to better outcomes. When done right, outsourcing can serve as an extension of your business and help you stay focused on achieving your goals.
4. Review Organisational Structure
Sometimes the biggest savings come from redesigning how your business operates. Take a critical look at your current organisational structure; can you identify any opportunities for improvement?
Review where you can reduce management layers without sacrificing control and effectiveness. You can consider combining multiple departments to streamline workflows and reduce redundancies or surplus capacity.
When your organisation is well designed and structured, it not only reduces operating costs but also enables your business to operate more efficiently and become more agile, allowing it to respond quickly to opportunities.
5. Upgrade Customer Interactions
Customers still prefer interacting with humans when engaging with a business. But many businesses find it expensive to deliver human interactions. However, it’s possible to reduce these expenses through qualifying customer queries.
This process can involve using an AI chatbot to answer simple questions, while routing more complex queries and requirements to a human customer service representative. Another strategy is to set up an interactive help centre with detailed documentation to address common queries. Customers can access the help centre for quick troubleshooting, while representatives can use it to resolve other issues.
Summing Up
When implemented correctly, these five operating cost-saving strategies can help you balance operational efficiency with long-term business savings. Start with the simplest strategy to build momentum, and gradually focus on creating lasting, sustainable change through continuous improvement. Whether you’re running a small business or overseeing a large enterprise, these strategies can help you optimise your business expenses and improve your financial health.
Remember, reducing your business’ operating costs is not a one-time exercise but an ongoing process that needs to be revisited and updated regularly.
