Cost-Efficient Growth: Cutting Expenses While Boosting Revenue
This article was updated on June 29, 2018.
Cost-efficient growth has become a Holy Grail within many businesses: a goal ardently pursued, yet infrequently achieved. Indeed, 90 percent of respondents to a recent CFO Signals survey by Deloitte said a top priority was increasing revenue or market share in their current markets, and almost 75 percent placed reducing direct or indirect costs at the top of their priority lists.
It is possible to cut expenses while fostering growth. The key is to assess how effectively each expense moves the firm toward its goals, and reduce or eliminate those that aren't helping the firm reach its objectives. This frees resources to pursue goals, establish competitive advantages, and acquire and maintain profitable customers and markets.
Here are some strategies for pursuing cost-efficient growth:
1. Scrutinize expenses.
A first step in pursuing cost-efficient growth is to justify each expense, even the ones that seem too little — say, publication subscriptions or janitorial services — to warrant much attention. Cumulatively, these likely cost your company a pretty sum. If they're not contributing to your firm's performance, they may be ripe for cutting.
Where it's not possible to eliminate costs, check if the amount spent could be reduced. While doing without janitorial services probably isn't an option, it may be possible to cut back the frequency.
2. Ensure jobs are reassigned when time-saving technology is introduced.
Many technical solutions are implemented with the idea they'll free up employees from manual, repetitive tasks. That's a worthwhile goal. The departments implementing those tools, however, should be measured against new productivity expectations. If the tasks on which several employees spent half their time are now automated, the employees should assume other responsibilities.
Moreover, the shift should be measured. For instance, if an AP system cuts the time employees used to spend answering vendors' inquiries, you should see a drop in overtime. If a CRM system streamlines customer follow-up, you should expect a jump in the number of new prospects the sales team talks to.
3. Combine spending to negotiate better discounts.
By gaining a handle on corporate-wide spending across most categories, companies are typically able to capture discounts that aren't available when each department individually handles spending. This is often the case with office supplies, travel and advertising, among other expenses. And while it's often not worth continually switching vendors to save a few cents — long-term vendor relationships have a value all their own — it is important to regularly check that you're getting maximum value for the amount you're spending.
4. Review administrative processes.
According to research by The Hackett Group, world-class finance organizations deliver services at a cost that's 42 percent lower than the others in their peer groups. That means more resources available for growth.
While any organization needs an adequate level of reporting and controls, those in place should be necessary and relevant. For instance, if employees spend time generating reports that aren't read, or that duplicate information found elsewhere, the tasks probably can be cut or eliminated.
5. Reconsider meetings.
While few companies can truly eliminate meetings, most can make them more productive. To start, organizers should be able to articulate the meeting's purpose as well as issue and follow a simple agenda. The attendee list should be limited to those employees needed to execute or approve the items discussed. After the meeting, the organizer should remind others of the actions to be taken and then check that they occur.
6. Rethink unprofitable product or service lines.
Once expenses are under control, you'll want to develop internal profit and loss statements for all products and/or divisions. Those that fail to meet the minimum profit level determined by the organization should be rethought. If they're holding the company back, it may be time to cut them to focus on the businesses that can drive growth.
7. Strive for continued incremental change.
Achieving cost-efficient growth is a process. Leading companies continually look for new ways to heighten efficiency so the company's resources can be directed to the products and services that will allow it to grow.
When companies achieve cost-efficient growth, they're able to distinguish themselves from competitors and stake strong positions in their markets. They're more likely to thrive, even in tough economies.
