Increasing Profitability

3. Reducing Costs

3.1 Minimise direct costs, such as the purchase of raw materials.

• Specify supplies of the right quality and minimise wastage. Periodically compare suppliers. (See Purchasing.)
• Negotiate good prices. (See Negotiating a purchase.)
• Involve the person responsible for purchasing in product development to help reduce costs.

3.2 Eliminate unnecessary costs to cut overheads. For example:

• Keep all costs under constant review. They tend to escalate if left alone.
• Check that you are on the best tariff for all the utilities.
• Negotiate lower bank charges.
• Ask a different broker to conduct a review of your insurance.

3.3 Maximise the cost-effectiveness of assets.

• Base purchase decisions on lifetime costs.
• The hidden costs of inappropriate equipment can be substantial (see 4.5).
• Your human assets are crucial (see 6). Make sure you are using your employees effectively.
• Identify surplus space in your premises and consider sub-letting it.