Cost reduction - if we manage to reduce expenses in our company, business ... or whatever our undertaking, we will be able to have more profits and at the same time we will make our project more sustainable.

When we talk about cost reduction, it is also valid to mention the word optimization. And that is why I invite you to continue reading because we will start with the basics, that is, what is cost reduction?

What is cost reduction?

We can define it as a movement or process in which the company, small business reduces expenses (expenses) in order to make the project sustainable and pursuing more profits. It is a process that is often carried out in companies, so as an entrepreneur you must handle these terms, because you will have to put it into practice.

Cost reduction as optimization

Many see cost cutting as a sign that a business is on the way to failure. It can even be seen as a way to lower the quality of what is offered. However, more than all this, cost reduction is a way to optimize our company. That is, it is not lowering the quality, but doing more with less. That is, I reduce expenses, but I continue to offer the same quality or even better, this is what is sought as much as possible.

Why lower the costs of a company?

There are many reasons why we can do this process. In the first place as a way to optimize our expenses, something common and common and that we must all do to avoid spending unnecessary money. However, there are also other reasons why it is necessary to carry out this process, for example:

Inflation in raw materials.

These are scenarios where we need more money and less expenses. So it is necessary to reduce costs immediately.

2 Tips for a good cost reduction

Although many companies by reducing costs also reduce the quality of what they offer, this process being a double-edged sword, it does not necessarily have to be that way. Here are some tips that will make you come out of this process a winner.

1- Detect what is left over

The first thing we must see is what is left over at all. Believe it or not, there may be expenses that exist for no reason. So take a pencil and paper and write down all your expenses and then analyze one by one if this cost is necessary. If not, look for a way to eliminate it.

2- Optimize the production process

Many times to transform the raw material into our product so that it can then reach the customer's hand, we use a series of steps that are exaggerated in number. We must understand that the more steps, the more workers we will need. So if we reduce those steps, there will also be fewer workers to pay.

That is why I recommend that you analyze each of the steps of production, sale ... and see if there is something that can be optimized without losing the quality of the product. For example, you sold a product "X" and shipped and someone else packaged. These are two things that the same person can do and we would save an employee.

Reduce future expenses that do not exist today

How is this? I mean to avoid expenses that we could have in the future. A good example might be extra money like interest for unpaid debts. These are surplus costs that we can avoid. But as I said before, they are costs that we may not have today, but we do not take care of our debts and we do not pay, it could be a big problem.

Another expense of this type can be those caused by work accidents that affect the employee and the equipment of your company. Without a doubt, this generates many expenses and problems that it is good to avoid.

For example, imagine an employee splashing water on a computer keyboard. This will undoubtedly cause the keyboard to be damaged, having to buy a new one. In addition to the fact that in the purchase and installation process, it is time that is lost in production.

And notice that it is a small example that I just gave you. Can you imagine a major accident that damages a more powerful machine, and even causes harm to the employee? That is why it is good that we have a plan to avoid all these possible accidents.

Mistakes to avoid when reducing costs

One of the main mistakes when reducing expenses in a company is not knowing the impact that this change will bring. That is why I emphasize that you must analyze. Well, you cannot decide to remove an employee without knowing the impact (negative or positive) it will have on the company. From there part