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Your 5-a-day guide to reducing costs

By 9th October 2012No Comments

<br /> Laurence Fitch

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Laurence Fitch

We all know that we can improve the profitability of our business by ensuring that we obtain the best possible value for the essential services we need to operate. Likewise, we all know that the key to a healthy diet is “5-a-day” but how many of us can say we stick to that religiously?

Like healthy eating, sticking to an effective cost management regime is not easy but the benefits of effective cost management can greatly add to your bottom line and are worth persevering with – if you have a 10% net profit margin a modest £2,500 saving on energy would have the same effect on cash flow as a £25,000 order ! So how can you produce long term sustainable savings for your company – here are our 5 tips to get you started:

Tip #1: Know what you are using?
It sounds simple and obvious but it is consistently overlooked. If you are looking for a new communications supplier would you know who you are calling, when you are calling, call duration, peak demands? So how can you negotiate best value? We once had an MD of a £5m turnover company tell us proudly how he had negotiated free evening and weekend calls with his current supplier – how was that of benefit to an office working 9-5pm! Most of us would not make this mistake but if you do not know your usage profiles you risk falling into a similar trap. The chances are this information and more will be available from your current supplier but you need to access and interpret it.

Tip #2: Know your Contract Dates and Renewal Windows
Do you know when your electricity and gas contracts are due for renewal? More importantly do you know what the termination window is for each account you have? Most people have a rough idea of when their contracts end but very few know the key termination dates, but in many ways this is the more important date. If you do not serve a termination notice on time most energy suppliers will automatically renew your contract for a further 12 months at rates which are unlikely to be very market competitive.

Tip#3: Know your suppliers
At some stage in either our personal or business life’s we will have signed up to a deal with a new supplier which promises to deliver lots but actually disappoints on all levels. Choosing the right supplier is paramount to the success of any initiative but this can be one of the hardest nuts to crack. Research, research, research and if the deal still seems too good to be true maybe that’s the case!

Tip#4: Know the market
Depending on the supplier you are with and the type of supply you have energy contracts can be agreed more than 6 months in advance of your contract end. The energy market can be a very volatile market and it has not been uncommon in the last 5 years to see prices rise or fall by over 20% in a short space of time. If energy prices are important to your company then knowing when to go to market can be a real benefit.

Tip#5: Know your Core
Over the course of a year many companies will order several 100 different stationery products but typically 80% of their total spend is on 20-25 core items. By negotiating better prices for these core items rather than a standard discount across the account you will achieve better value for your supply. To do this you will need to analyse every supplier invoice for the last 12 month to build a profile of your spend and importantly continue to monitor in the future to maintain savings, but when done well it is not uncommon to see spends reduce by 20-30%.

Hopefully these 5 tips will have given you some ideas to reduce costs. It also highlights that to produce long term sustainable savings considerable effort is needed. If you do not have the time, experience, tools or resources available for this maybe now is the time to consider talking to an outsourced expert.

Auditel are the UK’s leading independent cost management consultancy having completed cost reviews for over 3,500 clients in 80 different areas of expenditure. If you would like to discuss how we may be able to assist you please either email (laurence.fitch@auditel.co.uk ) or call me on 01727 865501.