The past few years, starting with the outbreak of the pandemic in 2020, have been pivotal for businesses, putting many local companies to a serious test. Numerous restrictions, lockdowns, disruptions in raw material supplies, and finally the breakdown of the known geopolitical order in our part of Europe—all of this has put many companies at risk, resulting in a noticeable increase in operational costs. To maintain competitiveness amidst these challenges, and without the ability to endlessly pass on costs to end customers, business owners are naturally seeking ways to effectively reduce costs. So, how can a company wisely optimize costs? Check out our tips to avoid common mistakes!

What does cost optimization mean?

After the tough experiences of the pandemic, many Polish business owners have taken steps toward optimizing the costs of running their businesses. This trend stems not only from financial losses but also from the desire to manage budgets more responsibly in uncertain times.

Cost optimization in a company is not just about cutting expenses, but finding ways to spend money wisely and manage finances efficiently. A common mistake among business owners is reducing costs without deeper consideration, not taking into account the long-term consequences of these actions. Intuitive and overzealous cost-cutting can close the door to further growth. Therefore, all actions taken to optimize finances should be done without compromising the quality of services or products offered, or reducing customer and employee satisfaction.

Moreover, financial optimization should not be a one-time effort, but a continuous process at all levels of management, considered in every business decision. It helps to view company expenses as delayed investments, rather than just amounts disappearing from the account. By focusing on the expected return on investment, it’s easier to assess whether a given expenditure makes sense.

Where to start with cost reduction in a company?

When looking for savings, the first step is to know exactly how much and what company money is being spent on. To do this, it’s worth starting with a detailed review of accounting data, which will provide precise knowledge of the overall costs incurred. Access to records helps prevent overlooking important items or underestimating certain expenses, which can add up to significant amounts.

To optimize costs, analyzing both fixed and variable costs is essential. It helps to categorize expenses into specific groups (e.g., accounting, office maintenance, salaries with social security contributions), then start by analyzing the largest items, whose optimization can bring the most noticeable results.

How to reduce costs in a company? Business tips

When planning cost optimization, it’s important to follow one key principle: reducing expenses should not stifle the development of the business. Every financial decision should be preceded by thorough analysis, considering the possible consequences. Cutting some expenses might only offer a superficial saving, which in the long run may turn out to be an unwise move. Therefore, it’s important to seek innovative ways to run the company, saving money without sacrificing the value delivered to customers.

Reducing office space costs: remote and hybrid work

A common way to reduce company operating costs is to review the office space needs of the team. With more organizations adopting hybrid work models, maintaining large offices often becomes an unprofitable solution.

This is especially evident when summing up the costs of renting traditional office space, where, besides rent, companies also face regular utility bills, which over the course of a year amount to a substantial sum. Companies understand this well, as shown not only by the 20-30% decline in the average office transaction size but also by the growing interest in flexible office spaces like coworking for teams.

Flexible spaces allow companies to adjust their office size to current team needs without signing long-term leases. Rental conditions, where the company pays only for what it actually uses, are ultimately more cost-effective than wasting the budget on empty spaces. You can pay a fixed amount for office rent regardless of the number of employees currently working or opt for coworking, where the fee is flexibly adjusted to your company’s needs at any given time.

Comprehensive workspace: renting offices for meetings

The unstable financial market causes uncertainty among entrepreneurs, leading to lower investment tendencies in real estate. Companies seeking savings often choose to rent offices, which offers greater flexibility in case of market changes, crises, workforce reductions, or the need to relocate. In such situations, moving the team to a new office is much simpler, faster, and more cost-effective.

Office rentals are also an option occasionally needed even by fully remote companies, for example, to meet with clients or conduct in-person team training.

Employee time savings: using outsourcing

One of the key advantages of outsourcing is that a company can quickly terminate the service or modify its scope, which is not as easy when hiring a full-time employee. Companies looking for savings decide to outsource some tasks because they can often get a broader range of services and better quality for a comparable or even lower price.

Every company has time-consuming, repetitive tasks that are not unique to the business but consume a lot of time and distract from strategic growth activities. Outsourcing typically covers tasks like bookkeeping and administrative or organizational work, which many entrepreneurs choose to delegate externally, for example, by hiring a virtual assistant.

What does the company gain from this? Primarily, it replaces a fixed cost (such as hiring an additional staff member) with a variable one, allowing it to adjust the scope and scale of work by the virtual assistant to current needs and business conditions.

Automation of business processes

Automation requires an initial investment, which can sometimes cause hesitation among business owners focused on cost reduction. However, this reluctance is often misplaced—provided the end goal of increased efficiency, reduced errors, and shorter task completion times is kept in mind. Instead of focusing solely on comparing amounts, it’s better to measure overall operational efficiency.

Monitoring advertising and marketing costs

Some businesses, especially during a crisis and wanting to cut costs, almost automatically decide to reduce their marketing budget. While this seems like a quick way to save money, it often turns into a vicious cycle. By cutting marketing funds, the company risks a drop in sales.

To find savings in this area, outsourcing once again can be a reasonable solution. Outsourcing marketing to a specialized agency brings greater flexibility and eliminates the costs associated with creating a new job, office space, or purchasing necessary tools.

Why is it worth optimizing costs in a company?

Controlling company expenses is the foundation of business success. Business-related costs not only should but must be optimized, with a healthy dose of common sense and based on solid analysis. It’s important not to focus solely on raw numbers—estimating and measuring the effectiveness of decisions and considering both the scale of activities and the expected return on investment in the long run is far more valuable.

Increased profitability and improved cash flow

Properly understood cost optimization should lead to more efficient management of company finances. To achieve this, a permanent change in the management model is necessary—so that available funds are spent wisely and are well-justified.

Employee motivation and increased engagement

Cost optimization often brings changes to existing processes and work organization. However, it’s essential to ensure that these decisions do not negatively impact employees by making their jobs more difficult or drastically lowering workplace comfort. Seeking savings at all costs can backfire if growing employee dissatisfaction leads to higher turnover, ultimately generating costs related to recruitment and training of new team members.

Jutta Hutsch-Kasprzyk

Jutta Hutsch-Kasprzyk is an experienced Chief Operation Officer who has focused on optimizing business processes and reducing operational costs throughout her career. She is a talented negotiator, building strong relationships with key contractors and customers. Her skills in managing company affairs, organizing team work, and developing strategies have contributed to the success of IdeaPlace on the business map of Wrocław.