7 tips for reducing business expenses (2023)

"For example, if you want to target a new market next year, you need to factor the associated costs into your forecast," says Brison.

(Video) How to cut unnecessary business expenses? | Ways to reduce business costs

2. Monitor expenses carefully

You need to understand your historical costs before planning for the future. This requires effective and efficient data collection.

"Tracking your expenses shouldn't be an afterthought, it should be an integral part of your ongoing operations," Brison says.

(Video) 7 Ways To Cut Expenses In Your Business (The Fastest Way To Grow Profitability)

3. Compare with your industry

Determine metrics that are meaningful to your business and comparable to those of other companies in your industry. "If you find yourself spending more in certain categories, conduct a thorough analysis, investigate why, and take appropriate action to reduce those costs in line with industry standards."

4. Manage variable costs

Take a peek into your company's pastVariable priceand calculate the percentage of sales they represent. Historical percentages provide a good indicator of possible future costs and a benchmark for keeping those costs in line with sales activity.

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5. Be strict about fixed costs

People tend to be complacentfixed costsbecause they are often repeated and often reflect long-standing relationships with suppliers. But you should regularly test the market to see if you can get a better deal from competing suppliers.

"It's good practice to get two or three offers on a regular basis," says Brison. "Whether through a request for proposal (RFP) or a less formal method, it's important to convey the message that you're always watching your costs."

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6. Invest in technology

Discover new technologiesthat can help your business improve efficiency, increase productivity and reduce costs. For example, many companies now use cloud computing systems instead of in-house hardware that can be relatively expensive to purchase and maintain.

7. Offer incentives to employees

Hold people accountable for costs and set appropriate rewards for employees who find ways to reduce costs. This helps create a zero-waste culture in your organization. It also helps motivate team members charged with implementing cost-cutting initiatives to stay focused and creative.

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"I like to break down overall cost management into the three R's: research, review and respond," Brison says. "In short, it comes down to careful planning (research), adjustments where necessary (review) and rolling up your sleeves to do the necessary and continuous hard work to bring the plan to fruition (response)."

(Video) 7 Tips to Reduce Manufacturing Costs


7 tips for reducing business expenses? ›

Cost Reduction Techniques

There are five main cost reduction methods are employed by businesses. The methods including Target Costing (TC), Activity-Based Costing (ABC), Just in Time (JIT), Enterprise Resource Planning (ERP), and Value Engineering (VE).

How can you reduce costs in a business? ›

10 ways to reduce your business costs
  1. Explore an alternative place of business.
  2. Draw up a budget and stick to it.
  3. Move marketing online.
  4. Pool your equipment with other businesses (or barter)
  5. Use part-time and freelance staff.
  6. Don't automatically renew premiums and services.
  7. Avoid unnecessary charges for finance.

What are three techniques used to reduce cost in a business? ›

Cost Reduction Techniques

There are five main cost reduction methods are employed by businesses. The methods including Target Costing (TC), Activity-Based Costing (ABC), Just in Time (JIT), Enterprise Resource Planning (ERP), and Value Engineering (VE).

What are the cost cutting strategies? ›

Cost cutting measures may include laying off employees, reducing employee pay, closing facilities, streamlining the supply chain, downsizing to a smaller office, or moving to a less expensive building or area, reducing or eliminating outside professional services, such as advertising agencies and contractors, etc.

What are the unnecessary expenses? ›

13 Expenses That Are Destroying Your Budget
  • Streaming Services. ...
  • Delivery Memberships. ...
  • Credit Card Interest Payments. ...
  • Data Storage. ...
  • Cable Bill. ...
  • Unnecessary Insurance. ...
  • Pricey Gym Memberships and Exercise Classes. ...
  • Costly Gifts.
Mar 3, 2023

How do you keep costs low? ›

10 tips to help you reduce your cost of living:
  1. Track your spending and set a budget. The very first step you should take when trying to reduce your cost of living, is to manage your money and set a budget. ...
  2. Haggle where you can. ...
  3. Turn down your thermostat. ...
  4. Chop your food spend. ...
  5. Switch off standby.

What are the 5 strategies in cost control? ›

Here are five cost control methods that allow a company to maintain and track its overall costs:
  • Planning the budget properly. ...
  • Monitoring all expenses using checkpoints. ...
  • Using change control systems. ...
  • Having time management. ...
  • Tracking earned value.
Mar 10, 2023

Can you give 5 examples of techniques on how do you reduce company cost? ›

7 tips for reducing expenses in your business
  • Make a plan. You need to evaluate where your business is now and where you want to take it in the future. ...
  • Track expenses diligently. ...
  • Benchmark against your industry. ...
  • Manage variable costs. ...
  • Get tough on fixed costs. ...
  • Invest in technology. ...
  • Offer incentives to staff.

What is an example of best cost strategy? ›

Amazon.com, for example, can charge low prices in part because it does not have to absorb the overhead involved in operating stores. Similarly, some talented chefs are pursuing a best cost strategy by operating food trucks and thereby avoiding the overhead required to run a restaurant such as rent and utilities.

What is best cost cutting decision? ›

The best cost cutting decision was made by Henry Ford of USA, a car manufacturer. He started a system called assembly line in which an individual worker was said to do a particular work. So that the manufacturing process would keep a good pace.

What are 5 mandatory expenses? ›

Social Security, Medicare, and Medicaid make up nearly 50 percent of all federal spending. Various income security programs, such as Supplemental Nutrition Assistance Program, Unemployment Insurance, Earned income tax credit and Child tax credit, account for an additional 18 percent of mandatory spending.

What are 3 mandatory expenses? ›

Mandatory spending includes entitlement programs, such as Social Security, Medicare, and required interest spending on the federal debt. Mandatory spending accounts for about two-thirds of all federal spending.

What are the biggest money wasters? ›

The 10 Biggest Money Wasters of 2022
  • Wasting food. ...
  • Emotional Spending. ...
  • Paying for convenience. ...
  • Keeping up with the Joneses. ...
  • Expensive tech and gadgets like phones. ...
  • Buying branded items. ...
  • Waiting until the last minute. ...
  • Mobile money transaction charges.
Dec 26, 2022

What is the 50 30 20 rule? ›

One of the most common percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.

How can businesses save money? ›

15 money-saving tips for small businesses that you need to know
  1. Review everything. Do you really need a piece of software you used once 8 months ago? ...
  2. Renegotiate. ...
  3. Do meetings better. ...
  4. Not using it? ...
  5. Remote working. ...
  6. Look after your team. ...
  7. Outsource. ...
  8. Go paperless.
Apr 25, 2023

What are 3 ways we could increase our efficiency? ›

Here are some strategies to get you started:
  • Set reasonable goals. Setting goals is critical to success. ...
  • Tweak your time management practices. ...
  • Ditch your digital devices. ...
  • Learn to say “No” ...
  • Take breaks. ...
  • Create a routine you love. ...
  • Let go of perfection. ...
  • Improve your environment.

What are 3 examples of prevention cost? ›

Prevention Costs:

Examples include new product review, quality planning, supplier surveys, process reviews, quality improvement teams, education and training.

What are two strategies to reduce cost of production? ›

There are a few ways to lower production costs: improve process efficiencies, negotiate better pricing with suppliers, and find less expensive materials or labor. You can improve process efficiencies by streamlining operations, automating tasks, and reducing waste.

How do most companies reduce cost of poor quality? ›

Manufacturers can choose to end a poor performing supplier relationship or pursue a supplier charge-back to fully recover the cost of poor supplier quality. This institutes a discipline that forces the supplier to quickly improve the products its ships and reduces the instance of product recalls.

What are the four major costs? ›

Purchase cost, holding cost, ordering cost, and shortage costs are the four major costs that are related to inventory.

What are the 4 types of cost analysis? ›

The four types of analysis that we will discuss in this series are: o One: economic impact analysis o Two: programmatic cost analysis o Three: benefit-cost analysis, and o Four: cost-effectiveness analysis.

What is the most efficient pricing strategy? ›

Value pricing is perhaps the most important pricing strategy of all. This takes into account how beneficial, high-quality, and important your customers believe your products or services to be.

What is the most common pricing strategy? ›

Market penetration pricing is when a company sets a price for its products that is below prevailing market prices. This strategy is most common for commodity products in mature markets with high price elasticity – in other words, for products where the demand changes dramatically with small changes in price.

What is the cost reduction theory? ›

Cost reduction is the process of decreasing a company's expenses to maximize profits. It involves identifying and removing expenditures that do not provide added value to customers while also optimizing processes to improve efficiency. Cost reduction typically focuses on generating short-term savings.

How do you cut costs without cutting staff? ›

So, consider ways to retain talent by cutting company costs without cutting staff.
  1. Reduce Power Use. ...
  2. Analyze Costs and Minimize Spend. ...
  3. Negotiate With Suppliers. ...
  4. Restructure You Rent. ...
  5. Maximize Productivity. ...
  6. Digital Everything. ...
  7. Reduce Wages & Reduce Hours. ...
  8. Rewards.

What is cost saving measures? ›

Cost-saving measure means a cost-effective facility improvement, repair, or alteration or equipment, fixtures, or furnishings added to or used in a facility and designed to reduce energy or water consumption or operation and maintenance costs.

What are the top 3 non essential expenses? ›

For example, expenses such as rent, mortgage, utilities, groceries, or medication are essential ones that you need to pay for living. However, things such as clothes, shoes, makeup, video games, gym membership, and, yes, even the Netflix subscription, are non-essentials.

What are 10 examples of expenses? ›

Common expenses might include:
  • Cost of goods sold for ordinary business operations.
  • Wages, salaries, commissions, other labor (i.e. per-piece contracts)
  • Repairs and maintenance.
  • Rent.
  • Utilities (i.e. heat, A/C, lighting, water, telephone)
  • Insurance rates.
  • Payable interest.
  • Bank charges/fees.
Feb 3, 2023

What are 8 examples of expenses? ›

Examples of expenses include rent, utilities, wages, salaries, maintenance, depreciation, insurance, and the cost of goods sold.

What are the two biggest mandatory spending items? ›

Social Security and Medicare are the largest mandatory programs the U.S. government has to pay for. Congress establishes the mandatory programs.

What are the top 3 biggest expenses? ›

For most households, the big 3 expenses are housing, transportation, and food. These three categories can take up a huge percentage of your income.

What are necessary expenses every month? ›

Necessities often include the following: Housing: Mortgage or rent; homeowners or renters insurance; property tax (if not already in the mortgage payment). Transportation: Car payment, gas, maintenance and auto insurance; public transportation. Health care: Health insurance; out-of-pocket medical costs.

What is the biggest killer of wealth? ›

Humphrey Yang says that cars are the No. 1 wealth killer in the United States. Cars are one of the biggest monthly expenses, and people often overspend because they see their car as a status symbol. If you keep your car costs affordable, you'll have more money to save and invest.

What things not to waste money on? ›

9 Things You should NEVER Waste Your Money on
  • Bank Fees.
  • Late Fees.
  • Lottery Tickets.
  • Books (Sometimes)
  • Food that Will Ultimately Get Thrown in the Trash.
  • Impulse Purchases.
  • Full Price for Anything.
  • Expensive Clothes You'll Only Wear a Few Times.
Nov 23, 2022

What can destroy money? ›

Fiat money can sometimes be destroyed by converting it into commodity form, rather than completely forfeiting the value of the money. Sometimes, currency intended for use as fiat money becomes more valuable as a commodity, usually when inflation causes its face value to fall below its intrinsic value.

What three 3 action should be taken to reduce production cost? ›

There are a few ways to lower production costs: improve process efficiencies, negotiate better pricing with suppliers, and find less expensive materials or labor. You can improve process efficiencies by streamlining operations, automating tasks, and reducing waste.

What are the 3 costing methods? ›

The main costing methods available are process costing, job costing, direct costing, and throughput costing. Each of these methods applies to different production and decision environments.

What are the 3 types of cost in business? ›

These expenses include:
  • Variable costs: This type of expense is one that varies depending on the company's needs and usage during the production process. ...
  • Fixed costs: Fixed costs are expenses that don't change despite the level of production. ...
  • Direct costs: These costs are directly related to manufacturing a product.
Mar 10, 2023

What are the three techniques of costing explain? ›

Job Costing: These are the costs which are incurred for a particular job. Contract Costing: It is just like job costing, the only difference being the duration. The duration of contract costing is longer. Unit Costing: These include the cost which occurs for a specific quantity.

What are the 3 major components of costs? ›

The three general categories of costs included in manufacturing processes are direct materials, direct labor, and overhead.

What are the three major product costs? ›

The three basic categories of product costs are detailed below:
  • Direct material. Direct material costs are the costs of raw materials or parts that go directly into producing products. ...
  • Direct labor. ...
  • Manufacturing overhead.
Mar 13, 2023

What are the 8 methods of costing? ›

Read this article to learn about the following eight methods of costing, i.e., (1) Job Costing, (2) Contract Costing, (3) Batch Costing, (4) Process Costing, (5) Operation Costing, (6) Unit Costing, (7) Operating Costing, and (8) Multiple Costing.

What are the 9 methods of costing? ›

ADVERTISEMENTS: Read this article to learn about the following nine methods of costing: (1) Job Costing, (2) Batch Costing, (3) Contract or Terminal Costing, (4) Unit (Single or Output) Costing, (5) Process Costing, (6) Operation Costing, (7) Operating Costing, (8) Departmental Costing, and (9) Multiple Costing.

What is the most effective costing method? ›

FIFO costing is the most accurate and one of the most widely used and accepted methods for costing.

What are the 7 types of cost? ›

Types of Costs
  • 1) Fixed costs. Costs that are unaffected by the quantity of demand. ...
  • 2) Variable costs. Costs associated with a company's output level. ...
  • 3) Operating costs. ...
  • 4) Direct costs. ...
  • 5) Indirect costs. ...
  • 1) Standard Costing. ...
  • 2) Activity-Based Costing. ...
  • 3) Lean Accounting.
Dec 18, 2021

What are the 4 types of costs? ›

Costs are broadly classified into four types: fixed cost, variable cost, direct cost, and indirect cost.

What are the 5 types of cost? ›

Types of Costs
  • Fixed Costs: Fixed costs stay the same and do not change throughout the project lifecycle. ...
  • Variable Costs: Variable costs are costs that change with the amount of work involved with a project. ...
  • Direct Costs: Direct costs are expenses that are billed directly to the project. ...
  • Indirect Costs: ...
  • Sunk Costs:
Apr 11, 2023

What is the most important element of cost? ›

Material is the most important element of cost. In most manufacturing organizations, 50% to 70% of the total cost of a product is represented by the cost of the material.

Which costing method is easiest? ›

Direct costing is a quick and easy costing method aimed at cost calculation for making decisions on production and sales planning.

What are two basic costing methods? ›

Job costing and process costing are the two basic methods of costing. Job costing is suitable to industries which manufacture or execute the work according to the specifications of the customers. Process costing is suitable to industries where production is continuous and the units produced are identical.


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