Financial Efficiency: 3 Cost and Expense Management Strategies

Knowledge Exchange is a weekly series of educational articles that we encourage you to share and discuss with your colleagues and network. This month, we’re offering advice about improving your business efficiency.

As life gets more and more expensive, we have to focus on the things we can control. You might not be able to limit some business outgoings, but you can be more efficient about how your team uses the resources at hand.

We tend to associate efficiency with productivity and team performance. While those are crucial, there are fluctuating operational factors you may be overlooking — namely, costs and expenses.

Here, we’ll talk about how to achieve financial efficiency despite inflation and other economic pressures.

Understanding the Difference: Costs vs. Expenses

Before we dive into ways you can improve efficiency in a monetary sense, it’s important to make the distinction between costs and expenses. These two terms are often interchanged, which creates confusion and leads to poorly informed decisions.

Examples of costs include staff salaries, subcontractor fees and software subscriptions. Expenses are things like rent, utilities, office supplies and marketing costs.

Strategies for Improving Efficiency

Now, let’s review some practical techniques for making your team and business more efficient by improving how you handle both costs and expenses.

Conduct a Comprehensive Cost Analysis

As with many elements of business, it’s helpful to evaluate where you stand with costs before making any big changes. A thorough cost analysis will help you identify what’s contributing the most to your overall costs and where you might be able to make cuts.

Follow these five steps:

1. Identify and categorize costs. Are they direct or indirect?
2. Allocate costs to projects. Explore which projects and services cost the most.
3. Distinguish fixed and variable costs. You’ll see opportunities for cost reduction.
4. Calculate overhead. Will you distribute these costs by labor hours or per project?
5. Analyze margins. Which projects are worth it, and what might you refuse in the future?

A well-executed cost analysis enables you to assess profit margins and allocate resources effectively. If you already have access to Accelo’s profitability dashboard, a lot of the work will be done for you automatically.

➡️ Don’t forget to list all of your tech platforms and subscriptions to discover if any are unused or underutilized.

Engage in Smart Expense Management

Keeping expenses lean is also pivotal in maintaining efficiency. Some expenses are easier to control than others, so it helps to have a plan of attack. 

Let’s look at three specific ways to optimize your business expenses.

1. Set and stick to project budgets. Every time project costs exceed your estimations, there’s an additional layer of expense output behind the scenes. Not only does your team need to budget well, but they need to be aware of every excess cost and expense associated with a given project.
2. Embrace expense tracking technology. Leverage the power of easy expense tracking in Accelo, which allows you to easily convert expenses into billable invoices so you don’t inadvertently absorb expenses your clients should pay for.
3. Negotiate with vendors. Don’t hesitate to negotiate with vendors and service providers for better deals. Build strong, long-term relationships with those whose services are the best fit, and you’ll likely enjoy more favorable terms and cost savings.

➡️ Remember: Each project and client is responsible for covering a percentage of your expenses. When your overhead increases, so does the average amount you need to make per project to maintain efficiency.

Optimize Project Planning and Monitoring

In a client-based environment, proper project management is closely tied to profitability. If scope creep is a regular problem, project costs will escalate and your overall efficiency will suffer.

Proper planning is the first step in setting yourself up for better cost and expense management. Your project managers should anticipate potential roadblocks and consider allocating a contingency budget to mitigate risk.

How you allocate talent to projects can dramatically impact efficiency. Use skill tracking and employee utilization data to thoughtfully assign projects to the right people.

Finally, it’s essential to keep a close eye on project milestones and costs. Real-time data about project progress that syncs with tracked time can help you align client-facing work with operational efficiency.

➡️ While productivity and efficiency are distinct, they’re also interdependent. Learn to calculate your team’s productivity to better understand how to apply human capital in the most efficient way — and where people might need help reducing mundane tasks. 

Leverage Technology for Efficiency Gains

Harnessing the power of technology can significantly improve your efficiency. Perhaps the greatest contributor to efficiency is automation. When you automate wherever possible, you save time, effort and money.

Make sure you’re applying automation to your business in ways that are supportive of both financial efficiency and client satisfaction.

About the Author

Chelsea Williams is Senior Copywriter at Accelo, where she shares unique insights with service professionals and tells user stories via blogs, eBooks, industry reports and more. She has over 15 years of B2B and B2C writing experience — primarily in tech, sales, education and healthcare. Chelsea is an AWAI-certified Master Copywriter trained in brand storytelling and microcopy.