We all know the equation: reduce your costs to boost your profits. But the “penny saved is a penny earned” mentality can go too far at times and could actually end up costing you more than you saved. Be on guard against economies that, while they save you money to begin with, place you at risk of spending much more to correct the problems they cause.
Need a few examples? Let’s look at a few common false economies in the business world.
1. Using Expired Supplies
When our suppliers tell us that a product has an expiration date, we may raise an eyebrow and decide to see if we can put the left-overs to use anyway. Fuel provides an interesting example. You may reason that since it’s a “fossil fuel” it’s thousands of years old already, so what’s with the expiration date? After considering this point, you might decide that diluting old fuel with new won’t hurt and will save you money, but whatever you do, don’t mix old waste fuel and new fuel.
The reason? Old fuel is bad for the machinery it powers. If it’s vehicles, blocked fuel injection systems are the inevitable result of this “money saver,” and if you’ve never had to have that problem repaired, suffice to say that it’s anything but cheap. The same point applies to any other product with an expiration date. Track those use-by dates and ensure that your staff is trained to check them before making use of supplies.
2. Being Underinsured
Insurance is always a grudge purchase. You’re paying premiums to get coverage against events that may never happen. When you’re having to tighten up budgets, it may be tempting to leave things up to luck and cut down on insurance. Admittedly, if you are lucky, you have a saving. But luck runs out, and when you don’t have insurance to protect yourself, your business, and its employees, one disaster could spell ruin.
There’s nothing wrong with shopping around for a better deal – as long as it really is a better deal and offers the same cover for less. Audit your insurance on a regular basis, ensuring that you have just the right amount of cover at the lowest cost, but never allow your business to be underinsured.
3. DIYing Your Marketing Materials
It’s true: anybody can create a website. It can even look quite good. The question you need to ask is whether that website will serve its purpose. Being found online isn’t just a matter of having an online presence, and creating a good impression, providing information to prospective customers, and getting people excited about your products and services are goals that most amateurs can’t achieve.
While there are overpriced website designers out there, the cheapest option, or a DIY job, aren’t going to rock the internet – or give your clients a positive impression – supposing they can even find your site among competing, and more professional, domains. You don’t need to be an expert to compare quotes, ask questions, and make good decisions. Use your commonsense, research tips on choosing a website designer, and get ready to pay for value.
The same goes for other marketing materials. If you’re going to spend money on marketing, ensure that it makes your business look good. Blurry letterheads, incorrect copy, amateurish trade-show stands, and hastily concocted social media posts and newsletters have the opposite effect. Limit your marketing to what gives you the biggest and most receptive audience, and do it well.
4. Opting for the Cheapest Suppliers
Price is certainly a point you’ll consider when choosing suppliers, but it’s only one factor in the mix. If you’ve ever had to scrap or rework entire production runs because a “cheap” supplier turns out to also be one who gives you poor-quality materials, you’ll know how costly this can be.
Service is another important factor. Having your business to grind to an unproductive halt because you’re waiting for X to supply Y is going to cost you much more than the lower cost of the supplies. Uniformity also matters, both within a consignment of production inputs and over time. You want a predictable result from your production processes, not a hit-or-miss gamble that may or may not satisfy your clients.
Choosing a supplier is a big decision. Your reputation depends on them. And if that means paying more to get quality, reliability, uniformity, and good service, then open your heart and your wallet. It’s worth it.
5. Using “Cost-Saving” Tactics That Increase Staff Turnover
There are many ways that your personnel practices can be used to save money in the short term. You can opt for short contracts, pay low wages, or offer fewer benefits. You can also end up having key staffers (or yourself) tied up with orientation, training, and supervision of staff who are just marking time and getting a pay cheque. Will they give you their best? Probably not, and even if they do, they’ll be looking out for a better alternative, possibly with your competitors. You’re back at square one with recruiting, orienting, training etc.
Look after your people, and most of them will work hard to look after you and your business. Basics like pay and benefits are so-called “hygiene factors.” They’ll keep your employees at their posts. Motivation takes more than that, but needn’t cost you money. Build a team that cares about your business. In the long run, it will have financial rewards.
It Takes Money to Make Money
When budgets are tight, the temptation to indulge in false economies is great. But remembering that doing things well, rather than just doing them, will help you to ride out most storms. Do look for redundancies. Find out where your business is wasting money and address waste. But beware of tactics that will cost you more than they initially save. You’re in this for the long run. Hang in there and use money to make money instead of saving money only to lose far more than you saved.