Cost Effectiveness in Business

To reach success, any business needs to make more money than it spends. This is done by maximizing income and by minimizing output. Methods of cost effectiveness help business managers to meet the needs of their businesses at the lowest possible cost. The challenge is to acquire superior materials, staff and facilities without spending so much that profit margins are affected.

A certain level of carrying costs are unavoidable as part of supplying a business with the resources that it needs to thrive. Cost effectiveness is not about depriving a business of its needs but about cutting waste and using every dollar to maximum advantage. Carrying costs that cover things such as insurance, utilities, mortgage or rent and loan payments should be managed efficiently. For example, a business that is housed in an expensive, centrally located facility, but that doesn't rely on its location for its success, may consider moving to a less central and much cheaper location to save money.

The blanket advertising with which most people are familiar, for example TV ads and billboards for major fast-food chains, is only cost effective for the most general of consumer goods. Most businesses can save a lot of advertising costs by carefully targeting their business promotions to reach only those markets that have an interest in their services or products. Advertising in a prominent trade journal may cost far less than placing the same ad in a magazine designed for a general readership but may reach just as much if not more of your target audience.

Through poor organization and misdirected momentum, many businesses flush a part of their profit margin down the drain every day. Decrease the waste in your business, become more environmentally friendly and increase your profit margins by insulating drafty buildings, keeping vehicle fleets well tuned and replacing wasteful light bulbs, machines and appliances with newer and more efficient alternatives. Many efficiency measures require an initial financial investment but are repaid over time through reduced energy costs.

A business that is carrying a lot of dead wood on its staff will notice an effect on its bottom line. Maintaining an efficient, motivated staff that consists only of necessary personnel helps to keep a business efficient and profitable. In difficult economic times, layoffs may become necessary, although this should be a last resort because of the negative effect it has on staff morale. Involving employees in the business through profit sharing and other motivating programs can increase company efficiency by inspiring employees to work effectively.