Do you really know where every dollar of your business is going? A closer look might reveal surprising opportunities to redirect spending for better results. I recently read Double Your Profits in Six Months or Less by Bob Fifer, which got me thinking about strategic vs. non-strategic costs.
Ideally, you want to increase investment in strategic costs – those that directly increase revenue and generate new business – and reduce your non-strategic costs – those that support the overall business operations such as administrative expenses, IT, and accounting or legal services. Obviously, there are necessary non-strategic costs, but when you review this category, it’s an opportunity to free up resources for value-generating activities, such as a better service or improved product.
Effective management of this concept, when shared throughout the organization, will result in higher sales and, of course, increased profits.
To put this into practice, I asked a new IT employee to review our tech expenses. He not only renegotiated contracts with IT suppliers, reducing some bills by up to 30%, but he also found that we’d been paying the cell phone bills of past employees who had left the company. Looking into these non-strategic costs freed up money for better use!
A few other examples of non-strategic costs to look at are:
- unnecessary office space or furniture
- unused software licenses
- underutilized subscriptions
- maintaining/repairing obsolete equipment
- traveling for meetings that could be held virtually.
In our counter-season seed production business, we know that good production results in happy customers and long-term relationships. That is the ultimate return on investment. We focus on the following strategic expenses, which are essential to delivering that quality service:
- People: a good team of qualified and passionate agronomists and field and facility technicians are key to achieving a quality product and providing superior service.
- Farmers: We have invested strongly in developing a good base of committed and well-paid farmers with fields that have good water availability and efficient and safe irrigation equipment.
- Reporting: We dedicate time to generating and delivering reports on the progress of our clients’ crops.
When was the last time you took a close look at your business costs? Are you spending on what truly moves the needle, or just maintaining the status quo? You can start by identifying one non-strategic cost you can reduce and one strategic investment you can increase. Small shifts add up fast. I’d love to hear—what’s one expense you’ve cut or one investment that’s paid off in a big way?
