Overcoming The 4 Most Common Misinterpretations of “Cost Reduction”
Nowadays rental costs have become the major expense for most SMEs (Small and Medium Enterprises). Every retailer now has the headache of working out the best way to reduce costs for the company. The 4 most popular cost reduction techniques include layoffs, inventory reduction, and cutting marketing and rental expenses.
However, only by understanding and implementing appropriately these concepts could you achieve your desired results. Should you accidentally misinterpret what these terms truly entail, it may outweigh the benefits of implementing them for your business. The following scenarios demonstrate how misinterpretations can affect your business.
Remember, don’t try these at home:
Misinterpretations #1: Reorganisation = Layoffs
The purpose of Corporate Reorganisation is to review work processes and improve or eliminate low productivity sectors in order to enhance efficiency and reduce the wastage of resources. However, that does not necessarily equate to “Layoffs”. Cutting down your headcount without an appropriate arrangement will only negatively impact productivity and employees’ morale, and it will also affect daily operation, service quality and your company’s image. This may also result in you losing customers. Instead of layoffs, freezing salaries, offering voluntary layoffs and temporarily delaying or suspending bonus payments may be better ways to reduce costs during tough times but keep you in good shape to come out of bad times.
Misinterpretations #2: Stop Purchasing = Save More Money
Retailers often set purchasing limits in order to reduce costs. Theoretically, maximum revenue level is equal to inventory. If the rental rates of warehouses and stores remain stable, lower purchasing levels will also lower your space usage efficiency. Before you make any big decisions, consider optimising your product combinations or re-adjusting your sales strategy.
Misinterpretations #3: Cut advertising budget when times are not good
Many companies also tend to cut marketing spend across the board in tough times. Start-ups seem to be more mature to notice that the cost of marketing activities is an investment rather than just a cost. Reducing your marketing budget always leads to losing opportunities for exposure which will definitely affect your sales performance. Try instead to review your sales and marketing effectiveness as well as your overall strategy and re-adjust your market positioning if something doesn’t feel right. Evaluating your current marketing expenses is the best way to optimise the marketing performance and it is a useful reference to adjust your resource allocation. Maximise your promotion chance to create more opportunities for the brand to stand out.
Misinterpretations #4: Shutting down retail stores is better than suffering from high rental rates
Small retailers often have to budget for the rental of multiple spaces such as their stores in addition to warehouse and office space. Historically, rental costs have been the most difficult part to compress, which is why large retailers prefer to shut down their outlets. But for most SMEs, this is simply not an option. The only choice they have is to relocate their business to a cheaper location. However the new location does not always perform as well as the former one because the retailer will lose old customers and it is far easier to retain customers than to attract new ones.
In contrast, changing your warehouse space in order to reduce costs is much easier. More small business owners have been enjoying the advantages offered by the flexible and convenient nature of mini-storage which has taken the place of traditional warehouse storage. In this way you can save up to 70% of your warehouse rental costs. Find out why here.
As you can see, reducing warehouse costs is the easiest of the above ways to save your money.
There are various storage services in the market, but how do you pick the right one?
Cube Self Storage provides all-round business storage solutions in response to market needs. Our purpose built, modern warehouse buildings have staff onsite seven days a week. Digital CCTV, smoke detectors and fire alarms are also fitted in all of our buildings. Instead of general locks, Cube’s storage units are equipped with anti-shear locks for stronger security. Our professional delivery team is always ready to provide collection and drop-off service to make your life easier. Speak to a member of our team to find out how we can help you reduce your operating expenses.
Contact
- 407A Kinh Duong Vuong, An Lac Ward, Binh Tan District, HCMC
- cs@cubeselfstorage.vn
- 0834400185
