21 Ways to Cut Business OPEX in 2024: Proven Strategies for Cost Savings
In 2024, businesses are navigating a challenging economic landscape marked by high interest rates, tight capital availability, and a cautious venture capital market. With interest rates hovering around 6-8% and venture capitalists becoming increasingly selective, many startups are facing significant valuation markdowns.
For example, once high-flying tech startups like Instacart and Stripe have seen their valuations slashed by more than 40% compared to their peaks.
Additionally, the IPO market has slowed considerably, with companies postponing public offerings due to volatile market conditions. These factors underscore the urgent need for businesses to optimize their operating expenses (OPEX) to ensure sustainability and growth.
Optimizing OPEX is crucial for improving cash flow, enhancing profitability, and ensuring long-term sustainability. This article provides 21 detailed and actionable ways to cut OPEX, focusing on practical tips and innovative solutions that can make a significant impact on your business's financial health.
1. Embrace Cloud-Based Solutions
Cloud-based solutions offer an integrated platform for various business functions, including point of sale (POS), payment processing, accounting, and inventory management.
These systems can significantly reduce costs by consolidating multiple services into one flexible solution.
For example, a restaurant using cloud-based services can streamline its operations, save on labor costs, and avoid the need for separate software vendors. The automation of tasks and centralized data management lead to increased efficiency and cost savings.
2. Re-Evaluate Vendor Terms and Contracts
Regularly auditing your vendor relationships can uncover opportunities for cost savings. Evaluate whether you can negotiate better terms or find alternative suppliers offering competitive rates.
For example, a retail business might renegotiate its supply contracts to secure bulk purchase discounts or longer payment terms, reducing immediate cash outflows and improving cash flow management. Shopping around for better deals can lead to significant savings over time.
3. Incorporate Sustainable Practices
Sustainable practices not only benefit the environment but also reduce operational costs.
Implementing energy-efficient solutions, reducing waste, and optimizing resource usage can lead to substantial savings. For instance:
Energy Audits: Conducting energy audits can identify areas where you can cut energy consumption and costs.
Waste Reduction: Minimizing unnecessary packaging and disposing of unused supplies can reduce waste disposal costs.
Equipment Maintenance: Regularly maintaining equipment, such as cleaning radiators and repairing windows, can improve efficiency and reduce utility bills.
4. Utilize Data-Driven Decision Making
Leveraging data analytics can provide valuable insights into cost-saving opportunities. Analyzing sales data can help identify under-performing products, allowing you to adjust inventory levels accordingly.
For example, a retail store can use data to determine which products to stock up on and which to phase out, reducing inventory holding costs and increasing sales efficiency.
Find some popular tools to help you level up your data-driven decision making, below.
Business Intelligence (BI) Tools
Helps in creating interactive and shareable dashboards to visualize data and spot trends.
A Microsoft tool that provides interactive visualizations and business intelligence capabilities.
A data exploration and discovery business intelligence platform.
Data Analytics Platforms
Provides insights into website traffic and marketing effectiveness.
Offers real-time analytics and detailed segmentation across various marketing channels.
Data Warehousing Solutions
A fully managed data warehouse service that can scale to meet high-volume data storage needs.
A cloud data platform that provides data warehousing, data lake, and data sharing capabilities.
CRM Systems
Offers comprehensive CRM solutions with analytics to improve customer interactions and reduce costs.
Provides a suite of tools for marketing, sales, and customer service analytics.
Supply Chain Management
Helps manage supply chain operations and reduce costs by optimizing inventory and logistics.
Offers a suite of applications to streamline supply chain processes.
Predictive Analytics
Helps businesses predict future events and behaviors using advanced statistical analysis.
Provides tools for data mining, forecasting, and predictive modeling.
Big Data Platforms
An open-source framework for processing and storing large datasets.
A unified analytics engine for big data processing, with built-in modules for streaming, SQL, machine learning, and graph processing.
Machine Learning and AI
Provides machine learning and AI tools to build and scale applications.
A cloud-based service for building, training, and deploying machine learning models.
Financial Analytics
An accounting software that helps in managing finances and generating financial reports.
Offers real-time financial data and insights to manage expenses and reduce costs.
Project Management
Helps in project planning, tracking, and managing costs effectively.
A visual tool for organizing work and projects.
Cost Management
Provides a cloud-based platform for business planning and performance management.
Offers spend management solutions to control and reduce business expenses.
Process Automation
Specializes in robotic process automation (RPA) to automate repetitive tasks and reduce operational costs.
Provides RPA tools to streamline business processes and reduce costs.
5. Optimize Inventory Management
Effective inventory management prevents overstocking and reduces storage costs.
Implementing an inventory management system can automate stock tracking, generate reports, and provide alerts for low inventory levels. This ensures that popular products are always available while minimizing excess inventory.
For example, a clothing store using a cloud-based inventory system can optimize its stock levels, reduce waste, and save on storage costs.
6. Conduct Regular Expense Audits
Regular expense audits help identify and eliminate unnecessary costs. By keeping detailed records and conducting frequent reviews, businesses can ensure expenses align with cash flow and budget projections.
For example, a manufacturing company might conduct quarterly audits to review utility bills, supplier contracts, and maintenance costs, identifying areas for potential savings and improving overall financial management.
7. Establish Clear Expense Policies
Implementing clear expense policies for employee-related costs, such as travel and meals, can prevent overspending. Setting limits on expenses and requiring pre-approval for significant expenditures ensures that company funds are used wisely.
For instance, a tech company might establish a policy that limits travel expenses to essential trips only, reducing unnecessary travel costs and improving budget control.
8. Cancel Unused Services and Subscriptions
Unused subscriptions can accumulate and drain financial resources. Regularly review all service agreements and cancel those that are no longer necessary.
For example, a marketing firm might audit its software subscriptions and eliminate unused tools, saving thousands of dollars annually. Keeping a close eye on recurring expenses can significantly reduce OPEX.
This applies to your personal life, too! Still paying for three separate Netflix subscriptions?
9. Adjust Working Hours
Adjusting operating hours based on demand can save on utilities and labor costs. For businesses with seasonal fluctuations, such as retail stores, reducing hours during slow periods can cut expenses.
For instance, a boutique shop might shorten its operating hours during off-peak seasons, lowering utility bills and payroll costs without significantly impacting sales.
You might also have to make the difficult decision to let some people go, especially if performance is not up to standard.
10. Pay Invoices Early
Many vendors offer early payment discounts, which can lead to significant savings. For example, a construction company that pays its suppliers within 10 days might receive a 2% discount on materials.
Over time, these savings add up, improving cash flow and reducing overall expenses.
11. Keep Employees Happy
Happy employees are more productive and less likely to leave, reducing recruitment and training costs.
Investing in employee satisfaction through fair compensation, positive work environment, and opportunities for growth can lead to long-term savings.
For example, a customer service company might offer flexible working hours and professional development programs, increasing employee retention and reducing turnover costs.
12. Promote Cross-Training and Multitasking
Cross-training employees ensures that essential tasks are covered even in the absence of key personnel. It also allows employees to multitask, improving overall efficiency.
For example, a retail store might train its cashiers to handle inventory management, reducing the need for additional staff and lowering payroll costs.
13. Outsource Non-Core Functions
Outsourcing non-core functions, such as payroll, IT support, or marketing, can reduce costs and improve efficiency.
For example, a small business might outsource its accounting to a specialized firm, saving on the costs of hiring and training in-house accountants. Outsourcing allows businesses to focus on their core activities while benefiting from the expertise of specialized providers.
You might use tools like UpWork to offshore non-core functions to talented freelancers from emerging economies.
14. Implement Flexible Staffing
Hiring seasonal staff during peak periods or freelancers for specific projects can reduce payroll costs.
For instance, an e-commerce company might hire temporary workers during the holiday season to handle increased demand, avoiding the long-term costs associated with full-time employees.
Flexible staffing ensures that labor costs align with business needs.
15. Reduce Travel Expenses
In today's digital age, many business meetings can be conducted virtually, reducing the need for travel. By utilizing video conferencing tools, businesses can save on travel-related costs such as flights, hotels, and meals.
For example, a consulting firm might replace in-person client meetings with virtual sessions, significantly cutting travel expenses.
16. Use Free or Low-Cost Marketing Tools
Digital marketing tools can be a cost-effective way to promote your business. Utilizing free or low-cost platforms for social media marketing, email campaigns, and content creation can save money.
For example, a startup might use platforms like Canva for graphic design and Mailchimp for email marketing, reducing the need for expensive marketing services.
17. Implement Remote Work
Allowing employees to work from home can reduce office space and utility costs. For example, a tech company might adopt a hybrid work model, where employees work remotely part of the week, reducing the need for a large office space and lowering overhead costs.
Here’s a handy guide on how to best implement remote work at your organization.
18. Utilize Energy-Efficient Equipment
Investing in energy-efficient equipment can lead to long-term savings on utility bills.
For instance, replacing old HVAC systems with energy-efficient models or installing LED lighting can significantly reduce energy consumption. Over time, these investments pay for themselves through lower utility costs.
19. Negotiate Better Rates with Service Providers
Reviewing and negotiating contracts with service providers, such as internet, phone, and insurance companies, can lead to cost reductions.
For example, a small business might negotiate lower rates with its internet provider by bundling services or extending the contract term, leading to significant savings.
20. Leverage Technology for Automation
Automation and Generative AI tools like ChatGPT can streamline various business processes, reducing the need for manual labor and improving efficiency. For instance, implementing an automated payroll system can save time and reduce errors, freeing up resources for more strategic activities. Technology can also automate customer service, marketing, and inventory management, leading to significant cost savings.
21. Leverage Mural for Payments
Are your payment providers eating up too much of your hard-earned income?
Mural is revolutionizing the remittance market by offering significantly lower fees and transparent exchange rates. Unlike traditional players, Mural leverages blockchain technology to reduce transaction costs and increase efficiency. This innovation ensures that you keep more of the money that you earn, providing a more cost-effective and secure solution for both individuals and businesses.
Conclusion
Reducing operating expenses is essential for businesses to thrive in the challenging economic landscape of 2024. By implementing these 21 strategies, companies can optimize their operations, improve cash flow, and enhance profitability.
Embracing technology, renegotiating vendor contracts, and promoting sustainable practices are just a few ways to achieve substantial cost savings. Innovative solutions like Mural can further streamline financial processes, making it easier for businesses to manage international transactions efficiently. Remember, every small saving contributes to a more robust and resilient business.
