Who wants to save money… wisely?

Lowering expenses, saving money, reducing costs. Those are magical words in the ears of business owners and entrepreneurs! Who among us doesn’t want to cut back a bit on our spending and see our profit rise a bit as a result!?!

I think saving money is an art more than it’s a science. I say this because I see lots of businesses trying to save money on the wrong things. Sure, the dollars make sense but there are other factors to consider! One example I see this in is marketing: Lots of businesses will hire low-cost marketers who may not be fully qualified to do the work, but they hire them instead of a more qualified person who costs more. Consider, however, that the more qualified marketer can create returns that not just higher but proportionally higher than the under-qualified marketer. (Clarification: I’m not a marketer so it doesn’t matter to me what you do, but that’s just an observation I’ve made).

So, how can you save money wisely? I don’t think we can simply ask the question “Can I get the same thing for a lower price?” even though that’s often the question asked. Instead, I think we need to ask the question “Can I get the same results for a lower price?”

That’s a big difference. To use the marketing example: The answer is “Yes” to the first question but (in my opinion) a resounding “No” to the second question.

Other considerations need to be made, too: For example, which of your choices is going to scale with your business as it grows? It may be that neither your more expensive or your cheaper option will scale appropriately and you need to find a third alternative. And consider the non-dollar cost to you in terms of time and effort: Lots of entrepreneurs accept a lower-cost solution which requires them to do more of the work. That’s not necessarily a bad thing if you have the time but you need to make sure if you have the time!

I’ve started to collect some money-saving ideas here. Not all of these ideas will be right for your situation, but they may give you some ideas to start. Check them out and if you have your own great money-saving ideas, feel free to add them to the comments.

How to Cut Costs In Business
Five Tips for Beating Inflation
Money-Saving Tips Anyone Can Follow
10 Easy Ways to Save Money In your Business
Cut Costs Without Cutting Muscle and Brain

Jessica Routier, IAC-EZ

Saving money – part 2

Saving money is good. It doesn’t just happen by spending less, either. A friend of mine, who is reading a book called The Boston Consulting Group: On Strategy told me about a chapter he read in which the writer makes this point:

“Cost of value added declines approximately 20 to 30 percent each time accumulated experience is doubled”. (Bruce Henderson, p.15)

That is fascinating to me! In general, I’m sure we’ve known it to be true – the more often you do something, the faster you get at it – but the writer of this chapter has put some numbers to it: When your experience on something doubles, the cost of adding value to your service declines by 20% to 30%.

Of course that doesn’t mean that you can provide a service twice and expect your costs to drop 30%. The writer goes on to describe exactly what accumulated experience means – both to a specific business in a few weeks and across an entire industry over decades. This “accumulated experience” is made up of:

• Learning: How much you have to learn to do a project once and how much you have to learn to do that same project again. In some projects it’s very low; in others, it’s very high.
• Specialization: Focusing on just one specific topic, deliverable, market, or line of business allows you to focus your efforts and discover new and efficient ways of doing things.
• Investment: What equipment, processes, or staff-time you buy in order to become faster at what you do.
• Scale: How frequently you need to perform the same task, or how many products you need to create.

So, there are plenty of ways to save money (and I mentioned a few in a previous blog) but one really effective way that the Boston Consulting Group suggests is to accumulate experience at delivering your product or service and learn, specialize, invest, and scale in order to drive your costs down.

Jessica Routier, IAC-EZ

Saving money – part 1

Businesses are in business to earn a profit. (Duh). So, how do you earn a profit? Your revenues need to exceed your expenses. And if you want to earn more profit, you have two choices: Increase revenue or decrease expenses.

Increasing revenue is good, of course, but it’s not always the best choice. Sometimes saving money is the better first step. That’s because you can keep increasing revenue more and more but if you have a giant hole in your business where all the money is flowing out through, you’ll put in far more effort than you need to. In many cases, it’s good to first find ways to save money, lower expenses, and make your business leaner. THEN, when you work on increasing revenue, more of it will move towards your bottom line as profit.

Here’s an example:

Imagine that you earn $10 from the sale of your product. But your expenses are $9. So profit is $1 per unit.

You could sell more – trying for $20 for the sale of 2 units – and end up with a profit of $2. But it takes a lot of effort to sell, so it would be nice if you saw more profit than that.

By lowering your expenses to $8 per unit sold, you’ll see $2 of profit per unit. Great! Now it’s time to put in the effort and sell more!

Having said all that, let me make this clarification: I don’t want you rushing out to cut costs unwisely. Cutting costs is good when you are able to maintain the same level of service. Perhaps you can find a cheaper way of doing something or maybe you can buy in bulk, and in doing that, you can lower your costs and positively impact your bottom line… but you need to be cutting costs in a way that doesn’t impact the service you deliver to customers.

From time to time I’ve given you some ideas to help you save money. Recently I posted some ideas about using tags to find out the impact that expenses had on your business and potentially finding some money savings there.

In the next blog, I’ve got an interesting piece of information about saving money that you won’t want to miss!

Jessica Routier, IAC-EZ