Many businesses have suffered as a result of the pandemic.
The 2020 recession officially began in February as several economic indicators, such as the housing market and unemployment rates, began to decline. This led to a record unemployment rate and businesses struggling to survive.
There are several cost containment strategies to choose from and choosing the best one is an important decision with its own consequences. Of course, finances aren't the only factor to consider, as other measures of success like product quality must be factored in as well.
Getting back on your feet can be hard, but here are some cost containment strategies to help you make it through trying times.
What Is Cost Containment?
Before you can implement a new business strategy, you must understand it. Cost containment is a multi-part process, and you need to know all parts of it to perform it properly.
The best place to start is to define the process itself. Cost containment is the process of managing expense levels. This is done to reduce unnecessary expenses and maximize profit (or limit losses).
Once you know what cost containment is, you can start to use it in your business. It involves analyzing everything you're currently spending money on and how you can make effective changes.
Performing a cost analysis is a crucial first step. It involves examining the costs and ROI of every controllable expense in each sector of your business. This allows for accurate planning when deciding how to reduce costs.
Once you've analyzed your business' financial situation, it's time to choose the most effective cost containment strategies possible. This step in the process requires a careful analysis of all the implications of any move and deliberate planning.
Be careful though, some cost containment strategies can harm a business in the long run. You must choose the best methods to cut costs without sacrificing your quality standards, employee and customer relationships, or reputation.
What are the Best Cost Containment Strategies?
When developing cost containment strategies, consider the unique needs of your business. Methods that help other businesses may not work for you.
There are several important considerations to keep in mind when making your choices. They include your customer expectations, current marketing budget, business size, benefits, and workforce.
Cost containment strategies are essential to the health of any business, regardless of its size. This is especially true in times of economic struggle like recessions.
Factors to consider when developing your plans include balancing the size of your workforce with demand, benefits, costs, travel time, and more. Examining everything regularly is the best way to continually reduce costs and increase profits because a situation like our current economy is a roller coaster. What was smart last month may be very different a month later.
There's almost an unlimited number of potential strategies for cost containment. Anything that reduces costs fits under its large umbrella.
A large business may be less likely to fail than a small shop that's just beginning to sell its offerings. That doesn't mean large corporations and chains can avoid cost management. There are unique challenges that increased size presents.
The larger your business, the more you'll have to focus on factors such as employee management at every location. Some divisions will be more profitable than others, which may reflect a long-term reduction in demand for products.
That is why large businesses may need to put extra effort into non-essential employee management. They're more likely to have a larger workforce performing tasks that aren't worth the investment. It may be best to reduce their salaries or let them go.
Corporations and chains may also have multiple locations across a wide geographic range. Analyzing each one separately is a necessary part of the process. Missteps at one location negatively impact the reputation and financial future of the entire business.
The statistics on success for small businesses are alarming, to say the least. In normal years 20 percent fail in their first year and 50 percent fail by their fifth year, but this year has been anything but normal.
These statistics and the economic downturn of 2020 make it more difficult than ever for small businesses and underscore why it is crucial for them to adopt appropriate cost containment strategies.
Small business owners must consider reworking their marketing projections, budgets, workforce, and other factors.
Be smart about what you do. For example, a small business may have to spend more on marketing than large corporations to get their name out into the world. Still, avoid overspending.
Small businesses tend to have smaller workforces, and most of their staff would be considered essential. This doesn't mean cost containment strategies for small businesses shouldn't involve analyzing worker costs.
The costs of employee benefits is a main business concern of small business owners and costs seem to always go up, not down. For example, 90 percent of owners expect insurance rates to rise every year.
There are several effective ways to reduce employee benefit costs without failing to meet government regulations or decreasing employee morale. These include shopping around to get the cheapest rates and evaluating which benefits you need. Don’t forget to shop for new ways of providing benefits through organizations and Professional Employer Organizations (PEO’s).
It's difficult to ensure you choose the right strategies for cost containment. You must be certain that they will help and not hurt your bottom line or other measures of success. There are several other factors to keep in mind regardless of the size of your business. They include costs, employee morale, investments, restart costs (the COVID-19 pandemic won’t last forever), and hits to your worker’s compensation costs, etc.
One of the simplest types of cost containment strategies is a cost cap for every aspect of business operation. Determine a budget for marketing, travel, employees, and all other investments commensurate with forecast sales.
Make sure that the numbers you use are appropriate and regularly updated. If you do, your overall cost management will improve, and your bottom line will thank you. It may be best to let a professional handle this part of the process to ensure accuracy.
Manufacturing costs affect every business that creates products. Therefore, they should be kept as low as possible without sacrificing quality. Several cost containment strategies can help you achieve this goal.
Another important factor is travel time for employees, shipping personnel, and everyone else involved in your organization.
Excessive commutes, trips, or other forms of travel provide a low ROI and may end up annoying employees. Limit these excursions to what's truly necessary. Try to always send the closest employee possible to complete a task that requires travel.
Examine the paths that employees and delivery trucks are taking to reach their destinations. Recommend that they always take the safest, fastest route possible. Look at alternatives such as UPS or other shippers for some routes.
Every penny you put into your business is a type of investment. A proper cost containment plan should always involve evaluating your various expenses as investments. Compare the costs to the ROI and decide whether your money would best be spent elsewhere.
How Can I Choose a Cost Containment Strategy?
There are several ways to ensure you make the best possible decision. These include considering efficiency, enacting regular evaluations, and hiring professionals to help.
Remember that almost anything that saves time will also save money in the end.
Whichever cost containment strategies you choose, it's important to regularly evaluate them. It's the best way to determine if they're still working and if any changes are needed. The 2020 recession and similar unprecedented market changes prove that you can never be too prepared.
Some skilled business owners can expertly analyze all aspects of their businesses but even they may still need help developing a cost-containment plan. There are several reasons you need a mentor to help you with this and other components of business growth.
Where Can I Get More Business Advice?
Hiring a professional to help you is one of the best ways to manage all aspects of your business. Want to explore further? Questions? Get in touch and let's set up a time to talk.Brian TracyUSA: 877.433.6225