Effective Strategies to Reduce Operating Costs and Boost Competitiveness
Learn how to strategically reduce operating costs, track expenses, and renegotiate supplier contracts to enhance your business's profitability and competitiveness.
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Operational Cost Optimization Tips and Tricks Nalin Mehta Business Coach I ActionCOACH
Added on 09/25/2024
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Speaker 1: I often hear from business owners that they lose a lot of orders because of price. They say my material costs are competitive. I need to reduce my operating costs, but I am just not able to do that. Main kya karoon? Hi business owners, this is your business coach Naleen Mehta. Welcome to my talk series Kya Karoon, specially recorded for you. First I am glad your material cost is under control. I am also happy you are not only cost conscious, but also try to benchmark your costs with your competitors. I am also glad you review your operating costs. The first challenge with operating costs is that they have a way of creeping up silently. Often you realize this very late. So foremost you must track your operating expense ratio, OER. The trend in OER will clearly indicate how serious is the challenge. This ratio is simply to be calculated as operating cost divided by total revenues. The second challenge you face with operating costs is that often as a business owner what catches your eye is employee cost, marketing cost and things like that. Cost reduction however has to be done strategically so that it doesn't impact the ability of your company to generate revenue. The third challenge many of you face is the way accounting regulations categorize the costs can be very different from the way you need to analyze them. For example, consultants, outsourced work orders, outsourced admin services, your accountant may club them together for the accounting statements. But you need to look a lot deeper than just the cost statements. So what you should do? You must track your operating expenses regularly, first keeping a watch on this ratio and raising the alarm well in time. Next what you must do is to create a detailed checklist of all the operating costs. Let me give you an example. Do not club overtime with employee cost. Similarly, do not club employee transportation with vehicle cost or for that matter with employee cost. Create a very refined list of costs. As I said earlier, this grouping may be very different from what is required by regulatory reporting. So go well beyond the regulatory system and set up accounting codes to track each line of item that you have listed. Now with this itself, you will be able to see all the costs that your business is carrying and just tracking them should give you many ideas what to save on. A handful of operating costs would fall in the bucket of totally unnecessary, I assure you, you will find that. And these operating costs quite often just fall below, you know, your threshold of concern. So bring them together, all those small cash leaks, put them all together in a bucket and simply stop them forever. Now look at your longest standing relationship with your suppliers and the largest monthly cost, these two categories. Often for many services which you are carrying on for many years, the costs have come down, but you continue to pay higher rates. You know, prime example here is data, internet services, software licenses, even transportation. So do look at each of those old relationships and renegotiate such items. Now when you do these things, you will suddenly find a few percentage benefit that you can get out of your operating costs. And this is sufficient, this couple of percentages are sufficient to make your business much more competitive, which will result in larger volume of business and will further improve your operating expense ratios. So follow these steps and I'm sure you will be able to do a lot better on your operating costs. I hope this Kya Karo video helps you to improve your operating costs and make your business more profitable and compete better in the market. Thank you.

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