Although it is possible to improve a firm's profitability by offering more types of prod-ucts, there is no guarantee

this approach will always work

Here are some effective cost-cutting strategies:
Scrutinize your products or services. Find out which of them are the most or the least cost-effective. Cut down on
those that give you the least profits, while investing more on those products that are the most lucrative.
Make variable costs your target. Cut down on fluctuating costs like advertising and employee salaries first, before
targeting fixed costs like the rent and utilities. This is because cutting back on fixed costs can cause more financial
and operational pain than when variable costs are cut.
Question every aspect of your business. Look at every expense, and see how each one adds to the value of your
business. Does it make any difference to the bottom line? Are there any other options? Are there better, faster,
cheaper ways of doing things?
Monitor your costs constantly. Don't cut costs just to shore up a faltering business and then forget all about it
once short- term objectives are met. Always keep track of your finances and always find ways to cut costs.
The best way to effectively cut costs is to penny-pinch ruthlessly. When you begin a small business with little
money, harsh circumstances teach you to be frugal with business expenses. But with growth, it is easy to lose track
of expenses. You should always keep in mind that for your business to be successful, a thrifty mind-set is essential.

General Tips about Profit Improvement and Cost Reduction

1. Recycle and reuse. The plastic bags, envelops and other packaging from your suppliers make good trash bags.
Another example is to use standard envelops with boxes printed on the face of these envelops where you provide
information for internal mail circulation. When received, the recipient can again reuse it to send his or her mail to
another internal employer.
2. How about saving and reusing photocopy papers or printing where there were errors in the photocopied or
printed document. If it does not contain confidential information these wasted papers can be used for writing or
scribbling notes by staff than using new notebooks and notepads. Ideally stop buying new notebooks and
notepads. You save costs and the environment.
3. Learn to photocopy and print on both sides of the paper. Buy photocopiers and printers that can do this with
ease and bring in a company policy requesting all staff to photocopy on both sides of the paper.
4. Insulation for your roof, attic and walls (including outer wall electrical outlets) will absolutely save you money
over time. Much of this, you can do yourself. While you are at it, check the weather stripping around the doors to
the outside; if you can see daylight between the door and frame -- purchase a roll of adhesive foam door seal and
close those cracks

5. Consider investing in reusable items. Rechargeable batteries are a good option if your battery consumption is
high the question you should ask yourself is: why is your battery consumption high and what can be done to
reduce that?

6. Have a no smoking policy or reduced smoke-time. Many staff members spend a lot of time outside office in
designated smoking areas. Sometimes other staff members accompany them jointly wasting a lot of productive
time.
7. Limit alcohol at company premises and functions. Alcohol is an added expense you may be able to eliminate
altogether, or at least significantly reduce.
8. Stop gambling within your organization such as staff getting together and pooling funds for Lotto and footy
tipping! These are personal acts of staff during company time.
9. Stop using paper napkins and paper towels. Cloth towels are more absorbent and can be used over and over
again. They also clean much better than paper.
10. Think about every purchase before you make it. Ask yourself whether you need it or simply want it. Do you
already own something that will perform the same task? Is it of good quality or needs replacing after a few uses?
Most importantly, are you willing to put off your profit improvement and cost reduction goals to have it? If an item
is superfluous, just say no.
11. Use the 24 hour rule. Wait 24 hours before making the purchase for non-critical items.
12. If you subscribe to non-essential services, like satellite radio, prepare yourself mentally to cancel the service
and then call their accounting department. Advise them that you are cancelling - they will transfer you to several
people but each time tell them the truth - you want to cancel because you cannot afford the service. If you persist,
they will offer you a discount - a substantial discount - to continue service because it is much cheaper for them to
keep a customer than to obtain a new one. If they won't give you a discount - cancel the service and do without it
while you save some money.
Warnings about Profit Improvement and Cost Reduction
13. Do not only consider the least expensive option that is certainly not always the best option. Many, many
times, an initial savings will cost you more later on. Carefully consider life cycle cost in addition to the acquisition
cost.
14. If you buy pre-owned, check carefully this is especially true of cars. Its worth the investment to have a
mechanic check the car (unless youre perfectly competent in that area are you sure?).
15. Dont go completely overboard. Its great to be frugal; its not great to be a mean-spirited miser. If staff needs
something definitely look for bargains but keep your priorities straight.
Telephones and Communication
16. When it comes to telephones consider consolidating all your landlines, voice over IP and your cell phones. In
this way you will be able to rationalise the number of lines and methods of communication and be reducing costs.
You can also use the rationalised list to negotiate with your service provider or its competitors to obtain better
prices.
17. When it comes to cell phones consider if most staff members require it. Again consider rationalising it to staff
members who work at outside locations and need to be contacted by head office or vice versa.
18. When cell phones are provided have clear rules on usage. Any violation of this must be charged to the
employee and recovered from their pay.
19. Consider texting or sending short service messages or e-mails to staff in foreign locations or those who may be
travelling abroad with whom you may want to communicate.
20. Consider using voice over IP such as Skype or gchat from Google. For example Skype charges AUD 4.00 for
unlimited calls to any phone or mobile in Australia per month. Whereas Optus charges AUD 109.00 per month for
the same privilege.
21. Cable television- consider if this is necessary for your company. Rather than having special cable television in
your lobby it may be a good idea to use preview. Your customers or suppliers who use your lobby would not seek
to view complete shows or movies that are shown on cable television during their office hours.
22. Understand your traffic patterns and what you spend better than what your telephone company knows or tells
you. Many businesses rely on their carrier to tell them what to do. This is ill-advised and reflects laziness on the
part of the person making the determination. Given the choice, a telecom carrier will always sell you a gold plated
Mercedes, whether you need it or not, on a 50 year lease, which only increases in cost every year, that you can
never get rid of, even after the wheels have long fallen off. Don't fall for this trap. You make the rules. It's your

money! 23. Package your services into something that you can explain to the carrier market in their terms.
Measure service by origination, type, distance, and per unit expense. Roll it all up from perfect granularity to
absolute 100,000 foot level.
24. Identify the minimum level of service that is required to meet the needs of your organization. This doesn't
mean cheap, it means that the combination of services you buy should exactly meet your needs, being neither
greater than, nor less than your needs. You don't have to pay for widgets you can't use, and you don't want your
users to go without services which are critical to the success of your business.
25. Identify the carriers that provide service in the locations where you originate a need for service. For instance, it
doesn't matter if XYZ carrier has nationwide service to major cities, if your main city is not on their list. Get market
comps from reliable sources. The carriers may be telling you the best rate is a nickel, while other may be paying a
penny, and they will never enlighten you beyond that which they need to. Other top performing end users
probably have the best rate information, which you can informally exchange. Be sure not to just look at the leading
rates that are generally followed, but look at the entire list of services. Recognize that the largest companies with
the highest volume do not necessarily pay the best rates. They often suffer from ossified contracts that have been
carried forward after far too many "good guy deals" have been cut. Carriers will always be quick to cite others who
are paying more money than you are. Don't worry; they only cite the higher ones, keeping the ones getting a good
deal private.
26. Invite every carrier to compete for your business that has even the slightest chance of winning your business.
Even if its just a single circuit. The more the better. Don't invite carriers who you wouldn't seriously consider giving
business to, which is called using "stalking horses." If you do this, the market won't respect you. Don't give any one
carrier any advantage that every other carrier is not getting. Make it fair. Use a level playing field. Make everyone
compete using the same information, released at the same time, and under the same rules. Don't give anyone
more time than you could perform within. Open the information from all of the carriers in private, sharing it with
the minimum number of internal people required to do the work. The more people that know of your internal
influences, the more they will share it with the market, and not to your benefit.
27. Set the pace. Your incumbent carrier will use excuse after excuse to slow down the process. Why should they
help you speed the process which will only result in their having to write down part of the fat profits they are
making on your business? This is not a time to get nostalgic. Set your terms, your timing, and award to the carriers
who earn your business. Not in the past. In the present. Once you have tentatively identified a carrier, make sure
to come up with a list of 2 or 3 others that can also suffice. Never tell any carrier what the outcome is until you
have your contracts signed. Its a very small vendor community, and your information will be shared (again to your
detriment) if you disclose it before the deal is done.
28. Measure everything and report your margin of success to your executives to they can understand your
performance.
IT Department Telecommunication Cost
29. Your IT department should save on systems connectivity costs, including WAN circuits, T1-type services, and
other telecom services used for remote office connectivity.
30. Identification of costs - Prepare a physical report listing all of your data line, circuits, etc., in place for remote
office connectivity. Include information that will help you evaluate the service for appropriate need later, such as
location, bandwidth, and number of users at the location. Conduct an inventory of all telecom expenses from your
recent telecom carrier invoices. Telecom expenses can be as high as 1 to 2 percent of revenue or more depending
on the makeup of your company. Office changes, growth by acquisition, and other issues can create situations
where there is "low-hanging fruit" by inspecting what you're paying for. Reconcile the invoice detail with the
telecom connectivity inventory list created in the first step. That is, compare what you think you have with what
you are getting charged for. For large companies or even small ones with many offices, this is no small feat. So
prepare yourself for an intense project or seek outside help from those who deal with telecom invoices for a living.
31. Total up the circuits/lines that are no longer in use or that can be eliminated. Measure this along with the
savings potential you have by reducing the bandwidth of certain remote office services while still providing
adequate response time.
32. Savings opportunity exists in: Lines, circuits no longer used or needed, ability to consolidate remote operation
services, ability to reduce bandwidth while maintaining acceptable processing speeds.

33. High-growth companies with many offices often have dormant services in place or more capacity than needed
in many locations. Also if you aren't reconciling your data-related invoices, you're almost always overpaying.
34. There are many companies that focus on identifying and recovering costs for your company. One of the
benefits is that, these companies pay or fee is based on the results of the dollars recovered or saved. Its approach
helps a company in three ways: analysing past charges and recouping overpayments. This can be up to a year or
more of overpayments and can be a tangible amount depending on your environment and company history;
reviewing contracts and negotiating with vendors to establish appropriate-use contracts; evaluating your current
telecom needs and recommending cost-effective solutions.
Heating and Cooling
35. In many parts of the world and Australia in particular during summertime the temperature increases to soaring
limits. It may be a good idea at this time to harvest solar energy and use it for your heating and cooling needs. The
government also provides many incentives and rebates are changing over to solar energy usage.
36. During the hot summer season it may be a good idea to change working hours so that your employees who
work in certain worksites and factory area where the temperature rises to very high levels can start early and finish
before the temperature rises. Alternatively major work can take place during the night shift.
37. Install ceiling fans where possible. This was the means used before air-conditioners came. This is an excellent
way to save on heating and cooling costs.
38. Open the windows. Unfortunately in many office buildings it is not possible to open the windows since it has
been sealed externally. These buildings depend on electricity to maintain the temperature within and for lighting
needs. Arranging to open the windows will reduce not only your heating costs but also lighting.
39. If your heating system works by gas you may be able to speak to your service provider and request a shut off
during the warmer months. This will help you to save on fixed costs. If this is not possible you may be able to sign
up for a pay as you use package.
Electricity
40. Use energy efficient bulbs. Again the government provides many incentives and rebates reducing the overall
costs of these energy-efficient bulbs.
41. Install systems and methods where light bulbs in certain areas are switched off automatically. I have seen in
certain areas where security lights or floodlights are switched on during the nights and forgotten to be switched off
in the mornings. Having a system that switches off the power supply to these security or floodlights during the day
makes the system automatic and saves substantially on electricity as these lights consume a huge amount of
electricity.
42. Request and educate your staff to shut off and switch of all electrical equipment and laptops before they leave
office at the end of the work day. Many people do not switch off electrical equipment and laptops when not in use.
The main reason for this may be convenience to them but not to the business. Routine checks must be made to
ensure that this policy is adhered to. This not only saves on electricity but also reduces risks of electrical fires when
staff is not available to handle them.
43. Request and educate your staff to only use electricity when absolutely necessary. Many offices can use natural
lights during certain seasons and times of the day. This is also true when you open the window to regulate your
internal environment and its temperature.
Water
44. In certain work areas workers have a shower before the commencement of work or after the completion of
work. Where shower facilities are provided use shower reduction kits. Again such shower reduction kits are
provided by the government and if not many incentives are available for using them.
45. Request and educate your workers to limit shower time.
46. If your toilets and commodes do not have two buttons for half flush and full flush change or install them. This
will save substantial amounts of water during the year or on a long-term basis. 47. Gentlemen's restrooms should
be fitted with adequate urinals. This again stops water being flushed down toilets and commodes.

48. Wherever possible use water-saving cubes in urinals. This is a new invention where you do not have to use
water as the cubes are capable of purifying the environment and urinals by using odour killing chemicals and
bacteria.
49. Use taps which stop automatically after dispersing a limited amount of water. This is a good idea where you
have people washing their hands in public toilets. If more water is required all that you require is to push a button.
This tops excess water usage and leakage.
50. Where possible use waterless hand sanitizers.
51. Repair leaking toilets and faucets.
52. Use mulch and other and water reducing systems for your office lawn such as drip systems and providing
additional shades to reduce evaporation.
53. Reduce the duration of watering and the number of days that you do it weekly.
54. If your business uses water filled in open tanks, use covers to provide additional shade to reduce evaporation.
Some companies have swimming pools in recreational buildings which may require the same treatment.
55. Learn to harvest rainwater and save them in huge tanks. You will be able to use this and save a ridiculously
large amount of cash you spend on water.
Entertainment
56. Stop providing free tickets and corporate boxes for many sports events or other at functions and activities.
57. When senior staff members have food and entertainment allowances fix daily limits.
58. Even when senior staff members may have food and entertainment allowances have clearly defined policy on
how the money can be spent and also for what purposes it can be spent on.
59. Request and educate staff not to order food by delivery or room service.
60. The company must have a system where the staff member first uses his/her personal credit card for food and
entertainment which will then be reimbursed by the company on actual bills. If the staff member is unable to
provide the proper supporting documents and bills or has spent on items which are not allowed by company policy
that payment will be withheld or paid net.
61. Stop buying or rationalize buying the daily newspapers, magazines, periodicals and books for management and
staff to browse and enjoy during office hours.
62. Do not order fresh flowers for every manager in the office. You may use fresh flowers in the main reception or
lobby area and even better if you can use natural looking artificial flowers and flower arrangements which are kept
clean and free of dust.
63. If the company provides annual trips to all members of staff it must be provided on the basis of costs reduced
or profits improved during the particular year. For example you may be able to tell your staff that if certain costs
are reduced by 20% they would be rewarded by this particular company trip. If this does not happen you do not
have to spend that money. However if staff is able to reduce costs as requested , you win anyways
64. Certain companies have the habit of taking their key management to exotic locations in faraway places for a
few days to brainstorm and develop corporate strategies. Whilst I do not condemn this great idea it may be best to
reduce the cost by having fewer days with a tight agenda and less travelling to do.
Purchase of Assets and Their Usage
65. Many departments buy new furniture and equipment whenever the need arises or if within budget limited
without further thinking. Before you decide to buy new items look carefully at the furniture and equipment that
may be in your storage. This is quite possible when many organisations today closedown facilities and dump the
furniture and equipment in storage facilities. To do is effectively however you would need the support of your
accounts staff who must keep track of all the fixed assets and have full control of its movement.
66. Before purchasing assets it may be a good idea to ask other departments or other strategic business units if
they have such assets and you could purchase them at reduce costs, or maybe even share them. This will not only
save money for your department but will also help the selling department or the sharing department to reduce its
own costs.

67. If you're a small start-up company you may be able to buy most of your assets from garage sales or closedown
auctions. Even if you had to spend a little extra on refurbishing and cleaning it up you would be able to save
substantially on them.
68. Another option which most companies consider now is to buy from online auctions stores such as eBay.com
and overstock.com Food and Drinks
69. Reduce variety for coffees, tea and milk purchased for staff use. Many companies are in the habit of buying
different types and brands of coffee, exotic and different blends of tea and milk to cater to the fancies of each and
every staff member. When you do this the company will incur extra costs in buying small quantities of a large
variety of items. You may be able to ask for staff suggestions before you make the switch. Practise variety
reduction at every level.
70. Always have limits to individual orders. Do not buy large quantities or bulk. Only buy what is required for,
maybe a week or two. This will not only reduce pilferage but also spoilage which is quite possible as certain food
and drink items have expiry dates.
71. Eliminate certain items from your food and drinks lists such as free biscuits, fruits, nuts, soft drink and soda for
your staff.
72. Install a water purification system for drinking water rather than ordering bottled water. Maintain the
purification system in good working order.
73. If your company has a tradition of providing free breakfast on certain days of the month or a barbecue it is a
good idea to limit the number of days this is done on a month. Also have a fixed limit on how much the staff can
spend on these occasions.
Automobiles and Related Costs
74. Request your staff to always consider, is this trip really necessary? When they ask this question they may be
able to look at other options such as sending the product or package by courier, delivering it at the stated location
on their way home etc.
75. Request staff to work together to consolidate trips or to reduce additional trips made during the day. I have
seen staff from various departments travelling to a particular site at the same time in different vehicles. Worst of
all you will see that each department has its own vehicle for such trips. Not only do you see this happening
between departments but you will also notice this amongst staff working in a particular department. Staff
members may go to a particular location but they do not plan or organise the at times together so they may be
able to do that by sharing a trip. For example to particular staff member may be leaving to a customer location at
eight o'clock and another member leaving 10 minutes later to a location in the same route. Of course I understand
that is not possible all the time. However what is important to note is currently there is no active method of
planning and organising visits to work locations.
76. Always check the tyre pressure of your vehicle. Check spark plugs. Use new or good quality oil for the vehicles.
All these steps will reduce the cost of maintenance and running.
77. Consider keeping a log and monitoring how often and how far you drive each and every business vehicle. In
this way you will be able to negotiate reduced insurance.
78. Less driving of vehicles also saves costs on maintenance, tyres, consumables and fuel.
79. Request and educate staff to change their driving styles to an ideal speed and to be less aggressive in driving.
This again would save on vehicle maintenance, consumables and fuel.
80. Staff who travel long distances should be given special or advanced driving lessons. Accidents happen which
can cost the company a lot of money and staff lives. Put limits on the amount of driving hours allowed during a 24
hour period.
Staffing Costs-Getting More without Adding Costs
81. The productivity factor- Obviously, one of the ways any manager can accomplish more with existing resources
is to improve the productivity of those resources. Improving your staff's productivity is an ongoing effort and one
that's important for the employee, your company, and for you as a manager.
82. Train and develop your employeesTarget specific training opportunities for each employee that helps him or
her do more. The training can be internal programs that cost little to nothing other than time from one of your
senior people. Or, you can use outside vendor programs that can teach specific skills to the employee that improve
his or her production capability.

83. Coach and focus employee effortsToo often, we allow our employees to "find their own way." Being more
proactive in delineating employee responsibilities, focusing their efforts on important tasks, and coaching them for
higher productivity is a good thing. Expect higher productivity and you will often get it.
84. Give them toolsOur employees want to be productive and to produce quality results. Invest in your
employees by giving them the tools that boost their productivity.
85. Incorporate a quality improvement programOften employee productivity is hampered by poor quality in the
delivery of their efforts. More than not, they can't see the problem; it's the "can't see the forest for the trees"
issue. For example, if your programming staff has to fix lots of problems that are discovered after software
enhancements are put into production, you have both a client service problem and a productivity problem. Every
time I have implemented a quality improvement program, I have met resistance from my senior people. Only after
showing them the numbers before and after the quality program do they actually believe it improves the team's
output.
86. Give extra incentives for more workIn a couple of situations you have an inordinate amount of backlog, need
to reduce the backlog level, but dont want to hire more people. To attack the problem, offer staff incentives to
work on extra projects "on their own time," which meant outside of normal hours. This type of program can be
very effective, but you have to be careful to avoid creating an impression that you are paying for overtime. Hourly
people get overtime, not professionals. You also only want to authorize the additional work to those who are doing
an acceptable job; in other words, the way to qualify for the incentive work is by doing your normal job well. Use a
program like this only in short spurts, say three to five months, versus allowing it to become a normal work
program.
87. The perception factor -Improving your staff's productivity can actually be accomplished by changing the
perception of the team's productivity. I'm not advocating any type of deception, but there are things you can do to
make the team appear to be more productive.
88. Organize for client service Create a structure and implement processes that help your employees quantify
issues, implement change in an orderly manner, escalate appropriate issues, and follow up consistently. Improving
client service automatically makes your team appear to be more productive.
89. Manage client expectations to your capacityIf your team is overcommitted to the capacity of what they can
deliver, the natural conclusion will be that they're not getting the job done. Manage your client's expectations to
your team's actual capacity for delivery and it will appear that the team is more productive. We should be
managing this way anyway, but it's easy to get overcommitted.
90. Filter the request backlog in your departmentReview the requests coming into your department from
stakeholders. Quite often, requests are made for items that are not necessary or that do not provide real value to
the business. Reducing the backlog and establishing more stringent approval requirements for new requests can
create a perception of improved response.
91. Over communicate communicate the status of outstanding issues more than you have been. Nothing makes
a customer feel more frustrated than not knowing the status of a support problem or outstanding request.
Keeping your customers and users "in the light" creates a perception of being more productive and improves client
service.
92. Over deliverCoach your staff to take the extra steps in supporting your stakeholders. Little extras go a long
way toward improving service, and higher satisfaction creates an image of responsiveness and productivity.
93. Publish your team's accomplishmentsYou might be surprised at how much we all forget about what we
accomplish every month. It's so easy to get caught up in the day-to-day issues and problems that we forget to
reflect on the things that were completed in the past. Start tracking your team's accomplishments and publish the
highlights monthly. If we forget what we accomplish, I can guarantee that the customers don't know all the things
we do. Share this knowledge with them, and you may find that customers really are interested and that their
perspective of how busy you are in your department or business unit goes way up.
94. Before you start trying to improve the productivity of your staff, conduct an assessment to determine how
productive they already are. If possible, establish a baseline and measure the improvements as you implement

specific actions that either improves your team's real productivity or the perception of its productivity. Capturing
real data in key areas will help you substantiate whats really happening.
Conclusion
The more you understand the power of this list, the more youll realize you must get your hands on all the other
ideas to benefit your business. Go to www.profitmaps.com.au to obtain and use a simple 5 step process that can
do this for your business. As mentioned each idea has the potential to increase your net profit margin by many %
points. Research shows profits increase by 4%-56% and costs reduce by 18%-37% within 2 years. Usually a 5%
reduction in cost is adequate to turnaround most loss making businesses. To obtain the maximum benefit and
ensure that the actions result in improving your bottom-line you need a structured methodology or a process on
an on-going basis such as the 5 step process suggested in www.profitmaps.com.au

High fixed cost can hurt you in difficult economic times, such as now, and can even drive you out of business. This
is what happened to many of the businesses that simply could not cover fixed cost with the sales plummeting.
There are several ways in which you can convert fixed costs to variable. Below we have highlighted them.

Hire temporary workers. Labor cost is probably one of the largest components of fixed cost for many
businesses. If you have permanent staff on your payroll you are not only paying their base salary and
benefits even when sales are down; but you are also responsible for covering payroll expenses. By hiring
temporary help you gain flexibility to reduce the staff easily when the sales is down thus reducing your
fixed cost.
Pay hourly wages instead of salary. Even when you do have permanent staff on your payroll you should
try to keep them on hourly rates rather than paying fixed salary. You can schedule appropriate number of
employees based on the customer traffic throughout the day and week.
Increase bonus tied to sales / profit as opposed to base salary. For those employees who are on a
salaried payroll, you should tie more of their compensation to incentives based on sales and profit rather
than base salary. That way you do not incur high labor cost even when the business is not doing too well.
Hire outside company to do non-essential work. Rather than hiring your own employees to do all the
work you can look into hiring outside firm to take care of them. They can not only do it cheaply; but it also
gives you flexibility in how much and when you want to get those services done. You should ensure that
you are not giving them work that is core to your business. You should have control over the essential
services to ensure quality, consistency and customer service.
Lease buildings and equipments rather than buying. There are number of benefits associated with
leasing. By leasing building and equipment you avoid spending large upfront amount. All the expenses
incurred in leasing can be written off in the same year for tax purposes; whereas large equipment
purchase have to be capitalized and written off over number of years. You also dont need to worry about
disposing off the equipment and losing money in the process in case you need to upgrade them or get out
of that business. Because of numerous benefits associated with leasing many companies even sell the
assets they own to the leasing company and lease them back, thus freeing up the capital.
Utilize free technology. A number of technology for which you had to pay for in the past are now
available for free. Google and other companies have number of free products that are replacement for
Microsoft mail, Office and other products. Another benefit you can gain from this is that you dont have to
pay for maintenance fees since many of these services are provided over Internet through what is called
cloud computing.