cost cutting

Cut What You Can, Without Compromising Your Business

To be a good entrepreneur, it is basic knowledge that we must know the maintaining cost of our business. Knowing the exact amount will not suffice here; but rather, we are talking about knowing the purpose and functions of each cent that we spend as overhead cost. Likewise, in order for us to become really successful entrepreneurs, we must also know how to cut on our overhead costs without sacrificing the operations and production performance of our business. How can we do this?

It is simple. It is just matter of knowing the marginal utility of each dollar we spend in our business. Knowing each marginal value each dollar gives will give us the insight into which is the best invested to profit ratio for our firm.

To further illustrate the point, let us take into consideration a business  that operates with a maximum number of employees. Most of the time, because of the diminishing value of labor, there is always a surplus of labor value that you pay without getting the optimal marginal value for it. In this case, you might want to shift into a pay per action system. Whereas, for example, a professional will be paid not in the salary system but based on the type and frequency of the services that he renders. This will cut the overhead cost for you by eliminating the unwanted labor salary costs.

Another strategy that you can employ is to cut the interest on your loaned capital. This can be done by using bank loans as capital source instead of credit cards whenever it is possible. This will cut the interest charge for credit cards because their interest rates are generally higher than bank loans, albeit readily available for short purchases.

Trying to ride with the marketing tide can also be one the things that could effectively cut your costs. This can be in the form of volunteer work for a church-based organization so that your company will have good publicity without actually paying for it. Another strategy is to ride with the popularity of the bigger players by affiliating your company with them. In doing so, just make sure that this will not compromise the identity of your company. A good publicity shot can give you the word-of-mouth boost that effectively cuts down your costs and even increases your income.

Planning ahead is also a good form of cost cutting. Buying in bulk and placing your purchase orders earlier can effectively cut your material costs. Furthermore, the other form of materials cost-cutting is by establishing a bidding system to the suppliers in the locality. In this way, these contractors will try to win your contract by deliberately lowering the price of their goods and services.

There are a lot of ways to survive in the business just by trying and playing every card that you can play; and cost cutting is definitely one of them. As a business owner, you just need to make sure that cutting your costs will not affect your quality of work. Thus, you still can deliver quality products and services to your customers.

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