5 ways to stay ahead of rising costs
Imposing accountability and awareness can go a long way to taming the bane of many businesses.
1. Share the responsibility
You and your chief financial officer shouldn’t be the only ones trying to rein in spending. Grab your financial statements and make sure someone in the company is accountable for monitoring every line by listing an employee’s name next to each one. “If no one ‘owns’ a cost, very likely it will get out of control,” advises entrepreneur Jack Stack, author of The Great Game of Business.
2. Reveal the price
Your office staff probably doesn’t know how much it costs the company to send a letter by overnight mail (ouch!). Similarly, a repair worker may not know the price of the parts he’s using to fix equipment. Telling them can save you a bundle. A maintenance coordinator at SRC Holdings, Stack’s Missouri-based vehicle-components remanufacturing firm, was floored to learn that shrink-wrap was costing the company $2,500 a roll. She soon hunted down a vendor who would sell it for $1,800.
3. Monitor the use of items
Employees at SANDOW who need pens, notebooks, and even Tylenol get them from a vending machine by inserting company cards that “pay” for the supplies and track their use in real time. The 350-person media business has saved thousands per year since installing the machines — made by Fastenal — at its corporate headquarters in Boca Raton, Fla., in 2012. “It has put our employees in the mindset of not being wasteful,” says Stephanie Brady, operations manager.
4. Spend wisely to win
By not chasing long-shot deals, you can slim your sales costs dramatically. “Market leaders are using the savings from pulling the plug on mediocre opportunities … to over-resource the business they want most,” says Neil Rackham, author of Rethinking the Sales Force. If you’re neck and neck with a rival and you both spend $50,000 to get a $2 million sale, the rival may beat you. Invest $100,000 and you’ll be likely to bag the client.
5. Raise your prices
When was the last time you took a course in pricing? For most entrepreneurs, the answer is “Never.” Get one on your agenda now so you know you’re not leaving money on the table. Meanwhile, read the Pricing With Confidence blog by Reed Holden, who has lectured at Columbia University and elsewhere. It’ll give you the courage you need to charge what your product or service is worth. A small price increase can have a giant impact on your bottom line over time.
Verne Harnish is the CEO of Gazelles Inc., an executive education firm.
This story is from the April 28, 2014 issue of Fortune.