Managing costs to maximize results

Cutting costs. Those two words can elicit a variety of responses from excitement to a challenge to fear of uncertainty to displeasure due to change. Like it or not, managing costs is a critical part of any business.

It's not a complicated idea. I have my revenue, I have my costs, what is left over is profit. If I want profit to increase, I either need to increase my revenue or decrease my costs. Whether you are a small business owner or CFO of a multi-billion dollar company, you are not exempt from managing and cutting costs. I've worked throughout the agricultural and food supply chain, and every company I've been with managed its costs.

Cutting costs carries a negative connotation for many people, but it needn't. It isn't simply watering down a product or laying off staff. It should be more strategic than that in your business. Simply put, cutting costs really is managing costs. With every expense you touch, you should be asking yourself, "Is this necessary? What is its value back to my bottom line?" Buying the most expensive ingredients might be the right fit for your company, if your targeted consumer values a high-quality top shelf product. If using lower quality ingredients would cause you to lose so many customers that your profit margins are lowered, it's not the right strategy for you. You would look at other areas you could where you could impact your spend, perhaps transportation, marketing, or warehousing costs.

There are two principles I recommend utilizing as you work to manage your costs. First, go through every cost under your jurisdiction, line item by item. Are there places where you can make modifications? You don't have to completely cut an item. Ask yourself how you could manage it better. For example, could you buy it for less? Could you ship it differently? Could you use less of it? Could you buy a lower-quality form of it?

Second, identify the low-hanging fruit and go after that first. Where are the easiest places to save that will have impact? Notice, I said, "that will have impact." If the savings are marginal, even if they're easy to come by, I recommend looking for some "bigger prizes" first. It is not uncommon that the easiest initiatives save the least and the most challenging initiatives save the most. Create a way to measure the size of the savings versus the complexity of implementing. Try ranking your ideas by complexity and then by savings potential. You could also use a scorecard approach to identify the best places to manage costs.

Managing costs is an important part of every business. A careful review of costs on at least an annual basis is critical to success. Carve time out of your schedule to work on this task. If you are part of a larger staff, be sure to include others in these conversations. With focus and dedication to this measure, you will be able to maximize your results!