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Productivity / Processes

How smart sourcing can help your bottom line

Smart sourcing is the big brother of outsourcing: it’s not just about cutting costs; it’s about sourcing the optimum solution for your business, making sure that it stays agile and flexible.

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Here are three key types of business costs and how you can smart source in each area to help your bottom line.

1. Overheads

These are the costs of “keeping the lights on” – the everyday expenses of running the business. They don’t change with fluctuations in revenue, unless there are significant movements in business activity, but they can be the hardest to rationalise because they are often contractual or fixed. Here are some ideas:

  • Take advantage of virtual services: Outsource your admin support to a virtual office service, which is shared between a few companies. This can free up your time to concentrate on generating revenue and fulfilling orders.
  • Specialist services: Consider outsourcing services such as technical support, accounting and marketing. How much time do you waste putting off tasks that you aren’t comfortable with? Engage someone who lives and breathes it.
  • Embrace the cloud: Not only can cloud technology solutions be more cost effective but they can also make your business more effective by allowing you (and your clients) to access applications and share documents online.

2. Revenue-generating costs

These costs have an impact (directly or indirectly) on the revenue that you bring into the business, so proceed with caution here when looking for ways to smart source in this area. The tricky thing is correctly identifying revenue-generating costs. Direct costs – the cost of delivering a specific project – are relatively easy to identify. Indirect costs can be harder. For example, marketing is considered an indirect, revenue-generating cost, and is often the first “go to” for some companies when it comes to cost cutting; however, this can be dangerous, or at least a missed opportunity to attract revenue. The key is making sure that your marketing is highly targeted and you have a clear strategy.

"Smart sourcing reviews should be a regular part of your business operations and not just something to be done in tough times."

Want more articles like this? Check out the processes section.

So how can you streamline revenue-generating costs without hurting your business?

  • Virtual teams: Think about supplementing your own efforts with a virtual team either based in Australia or overseas depending on your business needs. Your costs can then flex in line with your business activity. One of my clients uses this model very effectively. Despite being a permanent team of one they can offer 24/7 responsiveness by having virtual team members based in Australia, the UK, South Africa and India. That’s smart!
  • Renegotiate supplier contracts: Even if you are only part way through a contract it may be worth raising with suppliers, particularly if you have a good relationship with them and are a regular customer. Alternatively, look for new entrants into the market who may be willing to be more competitive.
  • Reassess your marketing strategy: Are you targeting your marketing spend where the results are most measurable? Can you use SEO (Search Engine Optimisation) more effectively to replace some of these costs?

3. Discretionary costs

These are costs that can be eliminated or postponed without disrupting operations or productivity. They are the easiest to cut but in today’s bootstrapped environment they are usually few and far between. Do they exist in your business?

Finally, these smart sourcing reviews should be a regular part of your business operations and not just something to be done in tough times. Keep an open mind on new ways to operate, regularly review existing contracts and stay agile.

How has smart sourcing helped your bottom line? 

Michelle Kvello

is a finance and business strategy expert and founder of Lantern Partners. She works with businesses to clarify their options allowing them to grow with confidence. It’s more than just the finance; it’s about achieving what you want.

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