What is Cost Control? And How Can you Apply its Principles?
If you own a business, you probably do it already. There are two ways to make more money:
1) Increase revenue
2) Reduce expenses
Put very simply, cost control is the latter. Put less simply, it’s the management of your actuals against your budget. For this reason, it is deeply rooted in the budgeting process. Cost control helps you figure out how much you’re really going to be making. Furthermore, it gives you intelligent guidance to help you set proper targets.
The first step towards proper cost control is to build a proper budget. The next step is to track how much you’re actually spending. Analysing and addressing any discrepancies between these two figures is how you effectively control costs. Some good ways to apply cost control is to analyse your vendors, lower freelancer costs, and optimise current employee time.
However, cost control doesn’t always have to happen after the fact. Simply tracking your actuals as and when they happen will make a difference in profit margins. If you’re aware of how much you’ve spent against your budgeted amount at any given time, you’ll be better equipped to stop big overspends before they happen.
One place we regularly see a lack of cost control is the events industry. A lot of the time, event managers simply aren’t equipped with the right tools to be able to track their costs accurately and at the right juncture. This leaves event agencies with a much smaller net income than they deserve.
How Skype applied effective cost control
Skype Co-founder Jonas Kjellberg
Skype achieved so much success because Kjelberg and his contemporaries focused on decreasing costs in innovative ways. For example, a long time ago before fire and GDPR had been invented, newsletters weren’t as common. So rather than forking out money for marketing, Kjelberg figured if he had access to someone’s email, he could write a bit of code that would give him access to all their contacts too. And so began one of the earliest and most successful newsletter campaigns.
Anyone who remembers the beep bop boop of a dial up modem will probably also remember receiving an email invitation from your mate asking you to use Skype. Anyone observant may also remember how slow those modems became afterwards, or if they continued to beep and boop while you were trying to sleep. That was Skype using your coverage and data to keep itself running. Skype ran off everyone else’s internet steam.
If someone tried to do this today, I can’t imagine how big that “GDPR fine” would be. However, Kjellberg did it at a time when he could, when it was new and exciting and innovative. Cost control is about taking all the creative juice and analytic skill you pump into sales, and putting a bit of it into lowering your expenses.
Robbins, T. (2018). How to innovate in zeros. [podcast] The Tony Robbins Podcast. Available at: https://player.fm/series/the-tony-robbins-podcast/how-to-innovate-in-zeros-jonas-kjellberg-on-how-skype-eliminated-costs-and-took-the-company-to-a-26b-exit-in-just-two-years
We can’t all “innovate in zero’s” like Kjellberg, but with the right tools we can keep our costs within the budgeted amount.
If you’re struggling with cost control, click book a demo to find out how Procim can help boost your net income by lowering costs.