Reducing business costs: the 6 factors that impact the most
Business cost reduction is, without a doubt, one of the most debated issues and placed under the magnifying glass of business owners and managers.
Wondering how to reduce fixed costs in business is a legitimate question, because "cutting costs" is one of the most overused phrases in meetings: it often translates into drastic measures, hasty layoffs, hiring freezes or across-the-board budget cuts.
The problem is that these interventions may well benefit in the short term, but in the medium to long term they increase errors, turnover, low motivation and loss of important strategic skills.
Here are concrete factors to work on to optimize costs, reduce waste and free up resources to reinvest in what really creates value.
1. Have a clear view of costs (even before reducing them)
The first factor that impacts cost reduction is not cutting, but awareness.
Many companies do not have an up-to-date, granular view of how many resources are being absorbed by:
- fixed costs (rents, licenses, subscriptions, external services, energy);
- variable costs (raw materials, consulting, marketing campaigns, training, overtime);
- "shadow" costs (lost time, inefficiencies, re-work, errors).
Before you even ask yourself where to take action, it is useful to build a comprehensive map: a file, dashboard or management system that allows you to see all costs by category, area, process. Speaking of business cost reduction and examples, it is by doing this work that you may find, to name a few common instances, that you are paying for duplicate tools, old licenses that were never cancelled, vendors that are no longer strategic, or internal processes that cost more than they generate.
A good initial analysis is often the source of the most "painless" savings.
2. Understand how to reduce fixed costs (without traumatic measures)
The second factor concerns costs that "always weigh" regardless of volume: rent, utilities, infrastructure, software, multi-year contracts.
To cut down on these fixed costs, you can begin to reevaluate some factors and, as a result, make decisions related to aspects such as:
- Renegotiate terms with energy or recurrent service providers;
- Review rooms, spaces, locations (perhaps introducing more efficient hybrid models);
- Simplify the software fleet by eliminating overlapping tools;
- Optimize schedules, shifts, and use of company assets.
3. Digitization of business processes
The third factor that impacts cost control the most is the digitization of business processes.
In fact, when you digitize, you automate repetitive tasks, reduce the risk of human error and re-work, and free up people's time for higher value-added activities.
Optimizing indirect costs related to time, quality of work, and information management allows you to save money without affecting productivity, in fact improving it.
4. Time management and work organization
The fourth factor is the concrete time each person spends between:
- Unnecessary or too long meetings;
- Manual tasks that could be automated;
- waits, decision blocks, unnecessary double approvals.
Time management is for all intents and purposes an economic lever. A team that works on lean processes produces more, with fewer errors, in fewer hours.
On the contrary, poor work organization is one of the most direct ways to affect business costs without realizing it: more overtime, more burn-out, more turnover, more people to do the same things.
The solution may be to start implementing some best practices: working on shorter, more focused meetings, approval flows, use of collaborative software, and a minimum of organizational discipline, all of which have a real impact on the income statement, even if it is not always immediately visible.
5. People, selection and turnover
The fifth factor is often the most sensitive: people.
Salaries, contributions, charges, training, onboarding, selection errors, resignations. If you look at the HR budget, you already know that this is where a huge portion of business costs are concentrated.
Poor management of recruiting and development can generate serious costs:
- bad hires that after 6-12 months leave or need to be replaced;
- long time to find the "right fit."
- Untargeted training that doesn't really change performance;
- high turnover on strategic positions (by the way, if you are interested in the topic of turnover, download the free whitepaper dedicated to turnover in sales networks);
- quiet quitting and poor productivity difficult to measure.
If you want to turn one of the most important cost items into a strategic cost-saving factor, tools like Skillvue can help you:
- Bringing forward a more accurate and faster selection process: Skill Assessments allow technical and soft skills to be assessed objectively early in the screening process. This way there will be fewer "dry" interviews, less time wasted by managers, and a greater likelihood of hiring people suited to the role and culture;
- Reduce turnover: by assessing not only hard skills but also organizational, management, and communication skills, you dramatically increase role fit and reduce the likelihood of having to replace people after a few months;
- Mapping internal skills: with a clear view of the skills in the company you can move, grow and retrain internal talent instead of always looking outside. This lowers the costs of searching, onboarding and reduces the risks associated with new hires.
If you wonder what the ideas are really for saving money in the company without making short-sighted cuts, working on people selection, development, and enhancement with tools like Skillvue is one with the best potential ROI.
Learn more about Skillvue's Skill Assessment
6. Culture of monitoring and continuous improvement
The last factor is not a specific cost area, but a way of managing the company.
A reality that reasons only by "extraordinary cuts" will find itself cyclically in emergencies; on the contrary, a reality that develops a culture of continuous monitoring and incremental improvement will manage to optimize costs without any particular internal "shocks."
This means:
- Have clear KPIs for costs, productivity, errors, time;
- Sharing data with managers and, when it makes sense, with teams;
- Create small cycles of periodic review;
- Reinvest some of the savings in innovation, skills, technology.
Why Skillvue is a concrete lever in reducing business costs
We have said that reducing costs without sacrificing quality, people or innovation means working smarter, not "cutting" more.
In this, the quality of HR decisions makes a huge difference.
Skillvue helps you right here: it turns recruiting, assessment, and development into data-driven processes.
If you want to understand how to optimize time, budget, and quality of selections with a 15-minute Skill Assessment, discover Skillvue and try assessments dedicated to your organization.
