Intensive retail: Practical tips for reducing costs and increasing sales

The eternal question that concerns every entrepreneur is “How can I reduce costs in my business and increase my sales?” This is an essential issue that is important to address with careful management, as reducing costs can be done in several ways, but it can also lead to compromises in quality, thus affecting the consumer experience.

Regarding increasing sales, it is not only achieved with more advertising and attracting new customers, but also requires strategic and proper management of the existing customer base, the efficient use of available resources and the improvement of the overall shopping experience.

If cost reduction and sales increase are achieved in combination, then the business becomes more sustainable and more competitive, ensuring stable growth in a competitive environment.

Let’s find out, however, what cost reduction and sales increase are, why it is important to achieve them and how.

What is cost cutting?

Cost cutting is the strategy of reducing the expenses associated with a retail store. There are several types of expenses that a business can reduce, such as operational, to personnel and labor costs.

If a business, for example, spends a lot of money on rent, cost cutting may mean moving to a smaller store.

Why is cost cutting important?

There are several reasons why a business wants to reduce its costs.

Economic Recession

Times are uncertain and the idea of ​​an economic recession is always scary. That’s why it’s important for entrepreneurs to have reduced their business costs so that they can maintain their viability even during periods when the market is volatile.

Financial Pressure

Running a retail business comes with a number of financial obligations. The financial pressure of committing to a lease, paying salaries, and providing employee benefits packages is overwhelming for some entrepreneurs.

So cutting costs helps relieve this pressure. By assessing your biggest expenses and cutting them as much as possible, there’s less pressure to sell crazy levels of inventory to pay for them.

Increasing Profit Margin

A very common reason to reduce a business’s costs is to increase profits! By cutting expenses, your profit margin becomes significantly higher, as it lowers your break-even point. Less money spent means more money left in your business’s bank account.

This improved cash flow gives many retailers a sense of financial security. A healthy profit margin means you don’t have to sell as much inventory to still have money in the bank after paying your business expenses.

What are the types of retail costs?

Of course, before you start cutting your business expenses, you should first take the time to categorize your expenses into three categories!

• Good expenses: “Good expenses” are unavoidable, or operating expenses, such as internet or credit card processing fees. However, they shouldn’t eat up a huge chunk of your profits.
• Bad expenses: Unproductive expenses in retail are costs that reduce your profit margin without providing any real value to the business. For example, if you rent a large space that is not being utilized, the extra space, lighting, heating, etc. that you pay for the extra square footage are bad expenses that can be reduced.
• The best expenses: The best expenses are the business expenses that lead to the maximum profit for your retail store. If, for example, you spend 500 euros a month on social media ads and your store has a monthly revenue of 5,000 euros from people who visited it because of an ad, then this is the best expense and a cost you can afford to maintain.

How will you achieve cost reduction in your business?

Since most cost reduction efforts, specifically 43%, fail, not only because there is no clear strategy but also because they are too ambitious, it is important to have a clear goal and the right instructions, to make cost reduction successful for your own business.

Focus on retaining your customers and not on acquiring new customers

Most entrepreneurs consider acquiring customers as one of their biggest goals, however, trying to retain existing customers could actually yield more financial benefits, but it is also a more efficient way to boost sales.

According to one of the top three business consulting firms worldwide, Bain & Company, repeat customers are likely to spend more, too, and this amount is likely to increase over time.

Control your expenses and reduce unnecessary ones

Of course, there are many operating expenses for a business, some are necessary, and some are not so much. Depending on your own business and your needs, you can determine which of your expenses are unnecessary and reduce them.

Automate repetitive tasks

Cost reduction does not only mean reducing business expenses. Costs can be reduced and profitability increased through automation, that is, by removing repetitive tasks from your retail staff, giving them time to focus on tasks with a higher impact.

Automation helps retailers save time and effort, which ultimately leads to cost reduction. It also frees up existing employees to contribute to the business in more effective ways, helping to grow rather than simply maintain the business.

Can an ERP system help reduce a company’s costs?

Of course it can, as long as you know the right way! Saving money with ERP software can be applied to companies that already have ERP or to those that are considering switching to an ERP system for the first time.

Overtime is reduced

ERP systems help automate many tasks and thus get them done faster. This reduces overtime and, by extension, the company’s costs.

Better job scheduling and a clear picture of demand can help control overtime, allowing for more efficient resource allocation. By knowing in advance the availability and needs of your business, you can adjust the number of employees and shifts, avoiding unnecessary expenses.

Minimizes administrative costs

An ERP system will help you reduce the time you spend on administrative activities.

Switching to an ERP system should do just that, reduce the time spent on administration.

Reduces production costs

Using data from the ERP system is key to reducing costs.

The data provided by ERP allows you to direct production improvement efforts by identifying where there are deviations. Comparing planned and actual cycle times helps identify delays and points that require adjustments.

Such analysis facilitates informed decision-making and prioritization of improvement projects, ensuring more efficient and targeted changes.

Ensuring Production Flow

Workflow is another key to saving money.

Every time a work center stops production, it costs money. When it starts again, there is often an increase in the operating rate. You are not producing at maximum levels immediately. Non-stopping is an integral part of maintaining production.

ERP monitoring tools, good capacity management and scheduling tools help. Combine these with good communication between your production teams. Together, you have a good way to ensure workflow and save costs.

You have time to work on other projects for your business

When tasks are largely autonomous, you have the time to focus your energy on high-performance tasks.

When you stop chasing production and spending too much time on management, you can spend it elsewhere. You can work with your supply chain to reduce costs, buy the new machine to reduce the unit cost of production, train your team to be more productive!

How can you increase your sales?

Increasing sales is closely linked to reducing costs and improving the efficiency of a business. Savings can be invested in improvements that enhance the customer experience. In addition, proper inventory management and avoiding shortages means that customers always find the products they are looking for available, thus increasing the chances of purchasing from your business.

Since process automation reduces the workload of staff, they are given the opportunity to focus more on service and boosting sales. Thus, the business not only reduces its operating costs, but also enhances its profitability, ensuring stable growth and competitiveness in the market.