It would help to compose a document with bullet points or numbers carefully outlining in great detail your cost saving measures. How exactly did you save money? What ideas did you use? It may even help to record ideas you had considered but eventually decided not to use, for future reference. You should also include dates when you implemented these measures to better catalog what you had done.

After writing out this list, go to each number and underneath write out exactly how much you saved. For example, if one of these measures is “Reduce Inventory Costs,” then write out what your inventory costs were before and after initiating these cost reduction measures. How long did it take to realize savings? Using dates freely will be helpful as you can monitor the effectiveness of your cost cutting measures. Perhaps you aren’t really saving much money with one or more of your methods, and being able to visualize it with a list will make it resonate.

You will likely spend time researching the financial results of your cost savings measures, but this effort will be well worth it as you will learn which savings measures are succeeding and which are not.

Afterwards, it would be wise to include a forecast of future savings for each cost saving reduction. What are your financial goals? How much should you be saving? How you determine these numbers are up to you, but these forecasts will give you a firm objective. Instead of abstractly saying that your company needs to reduce costs, you will have a number or range of numbers that you must reach.

It is very important that you ensure that your savings are realized; otherwise, your cost reduction measures may be ineffective, and your company continues to lose potential capital. Because visualizing company finances works for some, you may want to develop slideshow or spreadsheet presentations of your cost reductions to help conceptualize your progress.

Leave your comments below on further tips or suggestions on how to ensure savings are realized.

Why Traditional Management Isn’t Profitable

Traditional management has proven deadly for the world’s largest corporations. This type of management often holds the belief that employees are simply replaceable resources, and are supposed to succumb to the orders of their superiors. Employees have their own reasoning when joining an employer, however; the post-hire relationship is not what was expressed in the original job offer or interview. Low retention and satisfaction ratings are indicative of the management and not the company in general. The traditional paradigm treats employees as criminals or servants, rather than being part of the solution.

The Carrot Principle

Improving employee relations not only boosts morale, but it increases productivity and lowers labor costs. The Carrot Principle studied 200,000 people over a period of ten years and identified a direct correlation between managers who gave constructive praise and employee satisfaction (morale). Managers who motivate their employees with achievement and purpose-based recognition products received higher returns on their assets, operating costs, and return of investment.

The principle relies on productivity, engagement, retention, and customer satisfaction to lower labor costs and increase morale. The driving force behind the carrot principle is that the methods do not require a significant amount of money. The principle is culture-based and team-oriented, fostering genuine relationships that lower labor costs.

Lowering Labor Costs

When organizations need to lower labor costs the terms “layoffs,” “terminations,” and “buyouts” come to mind, however; by increasing workplace morale, companies save thousands of dollars each year. Employees who are satisfied and happy at their current job are less likely to leave their position for another company. Considering hiring expenses are astronomical, high retention rates reduce costs associated with recruitment, training, lost productivity, new hire, and lost sales. Retention rates among current employees may fall if the department is forced to pick up the slack, as positions are not filled immediately. It would cost $150,000 to replace an employee who made $100,000 per year, including benefits.

Addressing Morale Issues at the Top

When surveyed regarding workplace morale, most employees blamed their immediate supervisor, manager, or overall company structure. While managers have more autonomy and responsibility, they do not have the right to belittle their employees. Despite their past positions, managers need to be good leaders more than anything else. Beyond the basic job description, managers need to communicate the company’s vision, energize staff, build trust, and develop genuine connections with their coworkers.

The role of the manager is much different than it was twenty years ago, as there has been a general shift in employee relations that reduce labor costs. The modern workplace culture is solutions-based, with employees working to achieve a common goal. Communication amongst employees and managers should be open, honest, and genuine, with both parties actively listening to each other. More importantly, managers need to clearly identify their requirements and needs in a friendly manner. Dictatorship has no place in the modern workplace, as managers built trust and gain an employee’s loyalty.

Mentoring Employees

Increase productivity and build trust simultaneously by encouraging managers to coach their employees. Coaching is a friendly technique that provides employees with a means to improve their work and increase performance levels, which reinforces long-term job security. Mentors interact with their employees by engaging them during lunch, on breaks, or after work in a friendly environment. While intimate fraternization is cost prohibitive, mentors are encouraged to get to know their employees on a semi-personal level.

Foster the relationship by providing each employee with individual attention, as they need to feel they are part of the equation. Lower labor costs by keeping the conversations professional and enhancing their skills as an employee. Consider creating a “career track” for your employees, which helps them develop personal and professional goals. Discuss their current skills, and encourage them to develop new skills by taking professional development courses. Keep the communication open by asking employees for their input whenever possible, especially at larger company events where it will be noticed by other executives.

You can lower labor costs by thinking of your employees as regular people, asking them about their daily lives and their families. For larger organizations, consider adding an employee of the month column that highlights some of their professional – and personal – accomplishments. This is a great way to encourage employees to meet their personal fitness goals, for example, which reduces health care expenses. However, keep in mind that it’s advisable to avoid playing 20 Questions or getting too personal with employees.

The Cost of High Morale

Employee mentoring, incentive, and recognition programs significantly lower labor costs and are far less than what a company would spend to hire new employees. There is a direct correlation between low satisfaction and employee retention, which indicated that those less happy at work are more likely to leave their current position for a different job within the same industry. The truth is, most employees want working relationships with their managers that foster collective thinking for the greater good. Cheerful and happy workers are excited about their job and want to do their best, thus increasing productivity while lowering retention rates.

What’s your favorite employee morale boosting technique? Leave your reply below.

There are also associated extra services – investment advice, daily valuations, and educational seminars – that can be costly but unnecessary. To eliminate those would help with cost reduction. Finally, there are individual service fees attached to particular plan features. The investor should be aware of these costs and make a decision whether or not the service is worthwhile to the cost, as you can receive large savings by not utilizing these individual services.

In addition to these expenses, there are also basic types of fees connected to investment alternatives. First, commissions or sales charges are transaction costs for purchasing and selling securities.

Next, management/ account maintenance fees are ongoing charges for managing investment assets, and they vary based on the investment. Some of these fees cover the aforementioned administrative expenses. Finally, there are other fees i.e. statements, record keeping, and contact information.

The best way to lower one’s 401k fees for cost reduction purposes is to contact your advisor and openly renegotiate service fees. Researching different providers and learning about their charges may help you get leverage when talking with your provider. You can cut some of the services and thus receive lower services fees with your same provider.

You can also talk with your plan administrator about every single charge so that you can uncover precisely what you are paying for and if it is necessary. Remember, your provider is working for you and does not want you to leave. Perhaps your funds are being actively managed, whereas passive management would be cheaper and worthwhile – this is a good method for cost reduction.

Perhaps there is a bundled program that would be partially subsidized by your employer that would necessitate fewer fees. Since plans with more total assets can potentially lower fees by using special funds or classes of stock in funds, then this is an avenue you’ll want to explore too.

What other ways have you found effective to help lower employee benefit costs?

It’s likely that a lot of your recorded assets no longer exist, which means you have probably been paying too much in insurance and property taxes.

By doing this inventory, you will eliminate these non-core expenses and receive considerable savings. Additionally, if you haven’t compared insurance rates in recent years, you should probably consider looking around and re-evaluating your coverage. Your company is likely different now than it was several years ago, and you may be paying to much.

Next, look at your office expenses, determine what your noncore expenses are, and then cut those costs. Do you need to have separate fax and copy machines, or would it make sense to consolidate the two? Are people wasting paper by printing out documents when the work can be done electronically? Do your employees really need blackberries with full Internet access?

You must monitor all of your office expenses and figure out which are important and which are excess.

Cutting costs requires some frugality, as long as you’re doing it reasonably and in your company’s best interests. You must determine what your employees need compared to what they are accustomed to, and from there eliminate unnecessary office expenses.

Afterwards, research your different energy costs and potential alternatives. While you’ve likely heard of companies going green, you must research what that means and how that applies to cutting costs.

After work, should everyone turn off their computers or leave them idle? Are there realistic savings in replacing your light bulbs with environmentally friendly ones? Is it worth the effort? Cutting costs requires being proactive and researching whether or not you can find savings– after all, every dollar counts.

Finally, you can cut your non-core expenses by ensuring that your employees spend their time wisely. Multitasking is often a huge waste of time, and you should discourage this practice. Your salesmen may be seeking out the easiest customers, or the low hanging fruit, when the reality is this may not be worth the effort, and they should be focusing on bigger clients and accounts.

What non-core expenses have you found easy to cut?

Here is an example illustrating the power of a cost reduction strategy versus a growth strategy for a company with $10 million in annual sales.

A company with $10,000,000 in annual product or service sales will generally have a 5% pretax profit margin and the other 95% of costs are made up of production and sales.

A 10% reduction in costs would increase annual profits from $500,000 to $1,450,000.
That is a stunning 290% improvement.

However, in order to get the same 290% increase in pretax profit margin through increasing your company sales, you would have to increase sales from $10,000,000 to $29,000,000 in a single year.

That means you would have to essentially triple sales.

This task of essentially tripling annual sales is almost impossible to obtain even during the best economical conditions. Not only is it difficult to achieve doubling or tripling your sales, it’s costly too.

In order to double or triple sales, large amounts of additional resources are needed such as increased machinery and plant use, additional employees, materials, marketing, and other forms of resources. Not to mention the other expenses that eat away at profits.

Summary

Basically, growth is very expensive, time consuming, and requires working capital and other additional resources which eat into your profits.

However, cost reduction can be the fastest easiest way to double or triple your profits in a short amount of time and requires fewer resources. In fact, most cost reduction strategies have very little expense involved and the payback is instant in most cases.

Build profits the easy way this year through a cost reduction program while keeping sales steady. Remember that smart cost reduction is the best way to support new growth. Think about it.

Employers can manage health care costs in a society that is preparing for major health care renovation by monitoring the eligibility of spouses and dependents, investigating and reporting all claims, switching to different policies, encouraging spousal health insurance, reducing workers compensation payouts, and developing a legal team to handle litigation and settlement issues.

Utilizing competitive business strategies that monitor expenses closely can control health insurance costs. In 2007 the average employer paid $12,106 in health care costs, with the employee picking up $3,281 of the bill. Health care costs continue to rise, causing employers financial distress.

Conduct Family Eligibility Audits

An employee’s family is one of the largest health care expenses businesses deal with, as children and spouses become ill over the course of their policy. It is commonplace for businesses to spend millions on an employee’s dependent or spouse. Companies can reduce the amount of money spent on spouses and dependents by actively investigating all non-employee claims.

In most policies a dependent is defined as someone under 18 or who is a full time student below a certain age. The new Obamacare insurance reform requires employers to pay for dependents under 26; however, many current policies set the age at 23 or 24.

Employers can minimize health care costs by ensuring any person over 18 is a full time non-exempt student. Employers can encourage employees to set their dependents up with school-sponsored insurance, which reduces the employers overall cost.

Additionally, employers can alter the policies to remove unrestrictive verbiage from the documents, such as policies that do not require older dependents to be in school. Verification of a dependent’s status can be obtained from leading national clearinghouses and verification services at a fraction of the price of their health plan.

There are other health insurance loopholes employers can leverage, such as retiree benefits for dependents as well as dental and vision services. Limit the scope of retiree health plans by removing dependent coverage, only providing medical services to the employee’s spouse. Additionally, consider modifying vision and dental coverage for dependents by limiting it to essential and preventative services.

Deductibles and Out of Pocket Expenses

Employers can significantly reduce the amount of money they spend on an employee’s health insurance plan by utilizing plans with high deductibles, which ensure that their workers are protected in case of major illness or injury. Additionally, deductibles place most of the annual expenses on the employee, with the employer serving as backup in case of life threatening illness, expensive operations, and other expensive procedures, such as CT Scans or MRIs.

High deductible plans are ideal for small and large businesses that want to minimize health care costs and risks associated with high premium traditional plans. Employees are made aware of their high deductibles and take a proactive approach to their health, avoiding expensive hospitalizations for otherwise preventable diseases, such as diabetes.

When employees are aware of the true cost of health care, their overall demeanor towards a healthy lifestyle improves. They also are more appreciative of the services and benefits their current employer offers.

Minimize Health Care Costs by Splitting or Switching Plans

Encourage employees to utilize their spouse’s employer paid health insurance package if it is available. The strategy can be marketed as providing them with the maximum coverage, pointing out how their spouses program is a viable alternative. Educate employees on the open enrollment procedure, fostering communication within their family regarding the topic.

Employees can save up to $5,000 by switching to their spouse’s insurance, especially if the employee was on a high deductible policy. Another option is to encourage employees to split their dependent’s coverage amongst both of the health plans, minimizing financial risk to your business.

It is illegal to demand that employees switch to their spouse’s plan or remove dependents from their policy. Incentive programs are unethical but may drive lower health care costs in your organization. Use this method as a last resort, as some employees may take action against the company. Insurance commissioners frown upon the incentive or spousal switching program, thus it is best to encourage the splitting of spouse and employee coverage.

Start a Healthy Living Program

The fastest and most efficient way to decrease health care costs is by encouraging your employees and management staff to live a healthy and preventative lifestyle. Preventative care costs far less than other medical procedures, which reduces the out of pocket expenses for both the business and employee. Offer awards or incentive programs for employees who quit smoking, lose weight, stop drinking, or take a proactive approach to their health.

Be careful when publicly honoring the employee in front of their coworkers, as some may be nervous or reserved, these are sensitive topics after all. Healthy living programs foster a wholesome lifestyle, in which the employee receives routine checkups and works to reduce preventable conditions, such as obesity and high cholesterol. Healthy lifestyle programs can target diet, weight loss, smoking, alcoholism, aging, and stress. Additionally, healthy employees can participate by continuing to exercise on a routine basis and reducing their stress levels.

The Effect of Globalization

Should your business be expanding, then you must look even more closely at competitors worldwide, as your competition is greater in scope and your operations, and thus costs, will increase in size. Cost reduction is beneficial even when your company is performing well.

There are always extra costs you need to eliminate, and a profitable company can still be overtaxed with unnecessary financial burdens. You must always remember that thriving businesses still need strict monitoring – you must cut necessary costs in order to for your company to operate in optimal conditions.

Remain Competitive through Technology

Because of the nature of globalization, your company has competition with others from around the world, many of whom may have fewer costs. The Internet has allowed customers to conduct their own research on companies throughout the world that have the goods they want at a price they can afford, and some of these businesses may be able to out price you due to fewer labor costs, supply costs, etc.

The Internet can also benefit your company – a good cost reduction plan will utilize the Internet to best market your group. Just as your customers can look for the cheapest goods by going to a website, you too can look for the cheapest vendors and suppliers with the same tool. With the Internet and other technology, you can develop ways to distribute products at cheaper costs.

Your cost reduction plan should discuss using these technological means to improve your company’s efficiencies: computerized sales and order fillings, improved delivery channel systems; and purchase consolidations.

You may also take note that some businesses still do not utilize the Internet and other technology – these companies do not have cost reduction plans that address the benefits from these resources.

Take Advantage of Available Tools

Also, by taking advantage of online technologies, you can research other ideas that companies have tested and used. A business owner’s cost reduction plan should include research about why certain methods and ideas worked and failed. This could save a great deal of time and effort as you explore cost reduction options. The Internet, among other technological resources, is now required for you to stay competitive in the globalized world, and you can use these systems to your advantage.

For example, you can research ways of minimizing your cash outlays by looking at how other companies’ turn to equipment leasing – this is a clear instance of cost reduction. This practice is being used more and more because organizations want top notch equipment without the burdens of paying for these costly items. And now you know that equipment leasing is a beneficial means of saving money, something you may not have realized had you not used your technological tools.

A Cost Reduction Plan is Essential

All projects require a good cost reduction plan, which outlines the activities and criteria that are to be carried out. Your cost reduction plan will discuss input and output cost estimates in addition to the amount of money needed to be spent. This strategy will help you quantify your game plan and manage you, your employees, your creditors, and your shareholders’ expectations. A good cost reduction plan sets the tone for your company, and you should take the time to branstorm methods for cutting costs.

Your plan should discuss the reasons you are making such cuts in the first place. Is your goal to increase your company’s value? Are you trying to eliminate wasteful spending? Are you trying to increase your competitive advantage or simply just bring your expenses at the same level as your revenues?

Do you want to reduce the price of your services or products? Your plan must address what you are looking to achieve and your forecasts. What are your expenses compared to revenue and what is an ideal position? Your cost reduction plan must clearly identify a number of issues. Who will manage the costs? Who has the authority to approve or amend your budget? How do you measure and report specific cost performances.

Outline a Detailed Plan

Such information should be clearly spelled out, as your plan must address these issues so that you can reduce costs and increase your profit margins. Most importantly, your cost reduction plan will provide the planning required for controlling your various projects’ costs.
The nature of cost reduction plans can vary. Some can be greatly detailed and substantial in length. These plans can take a great deal of time to compose; however, this may be necessary for you to turn your business around. Cutting costs is no easy task as you have to be careful to only reduce costs on unnecessary items or things of which you can improve.

It makes little sense to reduce costs on essential and integral components of your business, things that you could not do without. Your plan must account for areas that you can afford to reduce. On the other hand, some cost reduction plans can be less detailed and smaller in size. It all depends on your objectives and the context of the plan, and there is no steadfast rule on how to compose your plan.

These plans can be written formally and narrowly just as they can be a little more informal and broad in scope. Depending on the experience of you and your project managers, you may not need a clearly defined cost reduction plan, though generally, the more information the better. As long as your plan discusses your goals and means to attain them, then you are at least on the right path towards creating an ideal plan.

Practical Cost Cutting Measures

By reducing utilities expenses, for example, your company will save money that otherwise will have been spent inefficiently. Reducing waste programs and office supply expenses are also practical cost reduction ideas, as companies all too often burn considerable funds in these areas without looking at cost-savings alternatives. Consider cutting insurance costs, inventory levels, or fixed asset amounts too.

Not only must a company owner find ways of reducing costs, he or she must also figure out different ways of doing business with third parties. It would be wise to research your vendor contracts and uncover whether or not you can get a better deal elsewhere. Good cost reduction plans will have you monitor your equipment leases to seek out better opportunities for savings. The list of cost reduction methods can be lengthy, which is why you must spend careful time planning out good strategies.

Look for Other Ways to Save

Reducing daily expenses that are adversely affecting the budget may be enough for your company to obtain the objectives set forth in your cost reduction plan. However, if these reductions are not enough, then you must further investigate areas you can cut expenses that will have a positive result.

Of course, you must take care in cutting costs in business and always use good judgment. If you, for example, decide to cut staffing, then you may find there to be significant consequences. Fewer staff may mean it becomes impossible to maintain delivery schedules. Layoffs can result in impaired product or service quality, which would obviously be detrimental to your business.

Layoffs are often the easiest expense to cut at first glance, but the far-reaching consequences can prove they are simply not worthwhile, and you would be best reducing your expenses by other means. Cutting too many expenses can have other drawbacks; for example, if you cut your inventory levels too much, then your company may save some costs, yet may not be able to deliver its products efficiently within your promised or a reasonable amount of time. This will not endear you to active and potential clients.

The Benefits of Cost Reduction

An efficient cost reduction plan will ensure businesses will not let expenses run rampant even in good times. While keeping costs reasonable may appear better than reducing your expenses, you must take into account business cycles and that businesses need to be able to quickly respond to a changing marketplace.

Even in good times, you must consider cutting costs, whether it’s as simple as cutting lights or something far more extensive such as fewer capital equipment purchases. Cost reduction involves both simple and extensive cost cutting measures, and your plan should address various ways of eliminating, or at least trimming, unnecessary and burdensome expenses.

Brainstorm Methods to Cutting Costs and Create a Plan

You must develop a solid cost reduction plan that will allow you to control your costs. In your cost reduction plan, you will establish your goals and explain your forecasts. This plan will help you manage your expectations and, similar to a business turnaround plan, is flexible should the circumstances warrant some alteration. Once you have come up with a strategy, you must figure out ways to reduce costs, increase market share, and gain an edge against your competitors.

Expense Reductions are Unavoidable

Good cost reduction requires you to do three things. First, you must increase your revenue faster than your expenses go up. Second, you must decrease your expenses while sustaining revenue. Finally, you company must improve its productivity.

You should review your vendor contracts and look at their competition in order to find potential savings with a new group. It is also wise to assess your equipment and look for other savings opportunities. A good business owner seeking optimal cost reduction will figure out how to reduce utilities expenses, telephone charges, waste programs, office supply expenses, and copying costs. As the company owner, you are the facilitator of cost reduction initiatives that will reduce your business’ expenses, and you must look at the benefits and costs of such potential reductions and more.

Companies sometimes use layoffs as a cost reduction measure; however, this strategy is often reactionary and flawed. When businesses have financial problems, they often scrutinize their finances closely and look to quickly cutting costs. Instead of laboring over one’s company’s finances and figuring out where the excess really lies, businesses all too often require job cuts in order to stabilize their finances. The fact is, layoffs have many consequences that can cause extraordinary long-term complications. Thus, it is best for a company to explore other expense reductions first.

Utilize Technology to Grow Competitive

Effective cost reduction requires you to look at your business globally and flush out the financial issues that are draining your company of extra income. Even if your company is growing rapidly, you must not ignore excess expense issues; rather, you must adhere to your cost reduction plan even when times are good because the situation can change rapidly.

Due to the nature of the globalized world, businesses cannot afford to ignore the advances and necessities that technology affords. Amazingly enough, not all businesses utilize email, electronic transactions, and other features of the Internet and electronic communications. In doing so, they are cutting themselves short and restricting their own potential. A good cost reduction system will have a business owner take full advantage of the Internet and its time and cost savings resources.

A web presence is also a cost-effective way to increase visibility with customers and convert more leads into sales. Online marketing is one way to help a business remain competitive and financially stable.