Reducing operating expenses is one of the best ways to free up capital for other purposes, and for industrial businesses, even the smallest reduction can make a huge difference.
Here are several tips for reducing operating costs and increasing sustainable growth and profitability.
1. Increase energy efficiency
Today, many businesses are moving toward increasing energy efficiency in order to get government funding, federal-and-state-sponsored rebates, and meet standards that will generate more attention from investors. It’s good for the planet, sure, but it’s also great for business.
Reducing energy consumption and optimizing existing usage are the two primary methods for increasing energy efficiency. For example, smart business owners are willing to front the cost of a reliable, efficient electrical transformer in order to save on their monthly electric bills.
Not only do electric companies offer lower rates when you own your transformer, but an efficient unit can significantly reduce the amount of wasted energy, thereby lowering monthly electric bills. Considering the average factory spends around $5,370 per month on electricity, every improvement you make will help.
Another way business owners reduce their energy consumption and increase efficiency is by getting professional inspections and replacing old infrastructure, like HVAC equipment. Even a small leak in the system can cause an increase in energy consumption if it’s enough to keep the unit running longer than it would otherwise.
Additionally, it’s important to weatherize your entire building to make sure the inside temperature stays as consistent as possible. In the winter, drafty windows and doors will bring in the cold air and force the heater to run longer. In summer, heat that doesn’t get deflected away from the building will fail to cool down the space inside and will just keep the air conditioner running.
2. Optimize business processes
Inefficient processes are costing your business money by the hour. Optimizing your business processes can make a bigger difference than you might think. For example, anytime you have an inefficient process, there are employees who are wasting time and spending extra tine redoing their work and sometimes getting nowhere.
It’s guaranteed that you’re spending hundreds of payroll dollars, if not thousands, on redundant work and idle time. For example, even just having a disorganized approach to file storage can create weeks worth of wasted payroll for multiple employees.
When there is a chain of dependency, someone who can’t find an important file can set projects back by days or weeks. It can even force your teams to compromise and move forward without the file. For example, say you decide to run a PPC ad campaign on Facebook and you want to use a specific photo of your company’s owner posing with a celebrity.
You need that specific photo because your entire ad campaign across all platforms centers on highlighting the company’s partnership with that celebrity. If nobody can find that photo, you’ll have to use a different image, and that will significantly undercut the impact of your entire ad campaign. Where you may have generated 5,000 leads or sales, you might only generate 1,000 – all because you don’t have the right, impactful photo.
Every aspect of your business can potentially have inefficient processes slowing your teams down and holding you back from reaching your full potential for profitability.
3. Cut unnecessary expenses
Although it’s obvious, it needs to be said – cut unnecessary expenses. This is easier said than done. Part of the battle is recognizing unnecessary expenses in the first place.
It doesn’t hurt to revisit all the services and contracts you have with suppliers and vendors to make sure you need those services and verify that you’re getting a good deal.
4. Optimize your supply chain
By optimizing your supply chain, you can not only save money, but also increase product quality and distribute your goods more efficiently, both of which greatly contribute to customer satisfaction. Good supply chain management will help you spot disruptions and bottlenecks in the process from start to finish.
For example, if your company experiences a high rate of returns and refunds, that’s a cost you can improve. By using software to track the efficiency of customer orders, you can use data-driven insights to improve the process and exceed customer expectations.
Part of supply chain optimization also includes inventory management. If you’re not carefully tracking supplies, materials, and finished products, you’ll want to get a handle on this as soon as possible. You may not even be aware that there’s a problem costing you time and/or labor where your inventory is concerned.
5. Collect data and use analytics
Last, but not least, analytics are essential. You should always be collecting and analyzing data to know where you are compared to where you want to be as a company. Increasing operational efficiency is only possible when you have a roadmap, and analytics can help you navigate that map.