What are some general ways to reduce fixed costs?
(edited)
What are some general ways to reduce fixed costs?
(edited)
Hi there,
This is very industry specific! In general though, this is about spending less and/or gaining efficiencies. If my fixed cost is rent, I can look to move to cheaper location. If it's factory costs, I can shrink the size or look for efficiencies. If it's labor (salaried) I can replace them with automation/robots/capital. The list goes on.
My General Advice For Cost Cutting
In general, for determining cost issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.
How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:
For more background on analyzing costs, look here:
https://www.preplounge.com/en/consulting-forum/structure-breakdown-for-costs-7963
https://www.preplounge.com/en/consulting-forum/inventory-costs-how-to-segment-6861
Mainly four levers:
(edited)
To start - fixed costs are costs that occur on a regular basis including rent, admin. costs, depreciation, and salaries, and are independent of the level of activity (e.g., production).
1) Rent - you can reduce this by right-sizing your real estate footprint. This can involve reducing the number of offices e.g. by moving your workforce to 'work from home' as the status quo, or by other non office properties (e.g. plants, warehouses, bank branches)
2) Admin. costs - automation and technology could mean you spend less on manual administrative activity and can reduce third party supplier costs
3) Depreciation - you could do an accounting adjustment and extend the useful life to depreciate PPE. Alternatively, reduce your overall stock of PPE assets.
4) Salaries - reduce the number of FTE (make people redundant) or reduce cost per FTE (juniorise staff).