How to reduce costs and improve profitability

Meg Moran • March 11, 2025

Cutting costs is arguably the quickest and easiest way to improve the profitability of your business. Introducing a cost-control system can bring immediate savings and ensure that you remain competitive in the longer term.

Systematic cost control


Start by identifying your major cost centres. These may be purchasing, production, sales and marketing, finance and administration. Assess your profit and loss statement for the last six months and rank all your expenses from highest to lowest then start working your way down, identifying areas where you could save costs.


Focus on applying cost-saving tactics in areas where you’ll see the most reward, for example:

  • Can you save on wages by outsourcing some work, or employing someone on a part-time basis rather than full-time?
  • If insurance costs are high, try searching for a new, cheaper supplier.
  • Other costs such as long-term fixed rate business loans or fixed price contracts for raw materials are hard to control in the short term. However, make a note of when these are up for renewal and plan to tender out to suppliers.


Comparing actual costs with budgets


Record your actual costs and compare them with the amount allocated in your budget. Try to work out why there is a discrepancy between what you planned to spend and what you actually spend. The larger the cost overrun, the more scope there should be for savings.


Actual costs that are higher than your budgeted costs usually indicate room to reduce costs. Lower costs may indicate good management, but might also reflect a drop in quality or potential problems.


A spreadsheet is an easy way to record and compare costs on a regular basis, such as monthly. Periodically review what you’re doing and how you’re doing it.


Benchmarking your business against other similar businesses may show that your performance is sub-standard. For example, your wastage levels might be higher than the industry average. This is an opportunity to implement cost-saving solutions and to set goals.


Who should be involved?


If possible make each cost the responsibility of one person or manager. Some costs will be easier to control if one person is responsible for that cost throughout the business. Get your employees involved in cost control. Give them an incentive to suggest cost-saving ideas and ask what causes them problems or wastes their time.


Employees are more likely to co-operate with cost-control initiatives if you explain the reasons for changes and they understand the benefits to the business.


Include your customers and suppliers. Once suppliers are aware you’re watching costs, they may start sharpening their pencils, especially if they know the other purchasing options available to you.


Talk to your customers as you may be able to save costs by eliminating unnecessary features or frills.


Some easy savings


There are some costs that can be reduced with little risk of an adverse impact on quality and performance. Some quick savings are:


  • Carefully checking supplier invoices for overcharging. Common examples are double billing, incorrect charges and missing discounts.
  • Eliminating unnecessary costs. Get rid of obvious overcapacity such as unused telephone lines and computers on after hours.
  • Measuring the return on all advertising so you can eliminate what doesn’t work.
  • Finding alternatives to high-priced suppliers, or negotiating discounts and better payment terms.
  • Avoiding over-specifying, such as high-quality components for a low-quality product.
  • Eliminating inefficiency. Identify manual, paper-based systems that could be computerised.
  • Avoiding making frequent small orders. They waste time and may mean you miss out on bulk buy discounts.


Other saving opportunities


Taking a systematic approach to all your costs should highlight other opportunities to control costs. In many cases, reducing costs will require you to change the way you do things but be aware of the potential to risk to your core business activities:


  • Reduce payroll costs by outsourcing activities.
  • Redesign processes to eliminate duplication of effort and time.
  • Make more use of technology and automation.
  • Consolidate purchasing with fewer suppliers to get better discounts and build strong relationships.
  • Agree to long-term supply contracts or annual purchase volumes in return for lower prices and negotiate longer payment terms.
  • Trim back your product range and increase production runs.
  • Meet with your business banker to review your finances and reduce interest costs.
  • Get the most out of your premises by sub-letting spare space.
  • Cut the cost of communications and travel by using email, internet calls (such as Skype) or teleconferencing whenever possible.


Potential pitfalls


Reducing costs can have a negative effect so before you make any changes, check that your standards will not be compromised, and that your ability to meet objectives will not be harmed.


Almost every cost saving has a potential downside. For example:

  • Over-dependence on one supplier puts you at risk if the supplier fails.
  • Production and marketing plans driven by cost-cutting considerations are less likely to be responsive to customer requirements.
  • Tighter control of financing may leave you with no safety margin when cash flow is unexpectedly poor. Contact your business banker to ensure you have some financing options.
  • Cutting short-term ‘investment’ costs such as training, advertising, equipment or new product development can lead to long-term weaknesses.


Your employee costs


Reducing costs when it will directly impact on employees is a difficult challenge. For instance, reducing training and meeting times is often counterproductive in the long-term.


Poor work conditions, pay and benefits will also not attract and retain quality employees and will de-motivate employees who do stay. Changing an existing employee’s terms and conditions to the employee’s detriment can be a breach of your legal obligations as an employer, so get expert advice first. It may also damage long-term morale. On the other hand, introducing improved procedures can be difficult and expensive. Employees may be resistant to change and may need extra training.


Speak to your advisers


Finally, you can speak to us.


We typically deal with many businesses and are in a strong position to help you identify and monitor ‘cost culprits’ and suggest ways to lower costs and improve business profits.




Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/business/small-business/moments/manage/cash-flow-tax/reduce-costs
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Do you know how your super is performing?

By Nikki Ashurst • November 2, 2026
Many Australians don't know how their super fund has performed or what it invests in. Are you one of them? Here's what to check and why it matters. Do you know how your super fund performed over the last two years? Many Australians don’t and are working towards their financial future without fully understanding one of their most important assets and without a clear plan for how their super may support them in retirement. That's not surprising, as many people view super as something that should run quietly in the background while they're busy with careers, families and everything else that life throws at them. But when you’re not sure what’s happening behind your balance, it’s harder to know whether you’re on track, whether your current approach reflects your goals or what opportunities might be available to help you make the most of what you’ve built so far. 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It can provide stability and faster access to money but typically offers lower longer term return potential. The investment option you choose determines the mix of assets held in your super based on your risk appetite. Most super funds offer options from conservative to high growth. If you’re young, a growth option with a higher exposure to growth assets like shares could offer higher returns over time – but it also comes with higher risk. As retirement nears, you might want to consider a more conservative approach with more defensive assets, like bonds for example to protect your savings. If you've never made a choice, you're probably in your fund's default option, which is designed to suit a broad membership. It’s worth knowing whether the mix you're in matches your circumstances and goals, including how far you are from retirement. Why performance alone is not a true comparison If you're thinking about how your super compares, returns are often where people start. The trouble is that a return figure means nothing without context: What it's being compared to Growth and conservative options invest differently and with different levels of risk. Compare like with like or the comparison may not be genuine. The comparison period A single year can be heavily influenced by short term market conditions. Super is measured in decades, so five, seven and ten year returns tell you far more about whether a fund is consistently doing its job, albeit not a predictor of future performance. Fees and tax Published returns should reflect investment fees, costs and tax but administration fees may be charged separately from your balance. Two funds quoting the same return can leave you in meaningfully different places once all fees are accounted for. Then there are the things that returns can't show you at all. For example, what insurance is attached to your account and what it's costing you, whether the fund offers guidance, tools and advice or simply sends a statement once a year. Another consideration maybe the level of support available when you need it. When comparing funds, it's worth looking at the full picture, including performance, fees, investment options, retirement support and member benefits. What today’s decisions mean tomorrow To understand how your super stacks up, start here: Find your investment option It's on your annual statement and in your online account. Look at what's in it Your fund publishes the asset allocation (shares, cash etc.) for each investment option. Check the long-term return for that option Focus on five and ten year returns, not just last year and compare them with equivalent options. Understand the total cost Add together administration fees, investment fees and insurance premiums as an annual dollar figure. Comparing super is about working out which option will perform best for you. Before you jump in, it’s worth understanding what's behind the numbers so you can make decisions based on more than a headline return. Knowing where you stand is the first step A super balance tells you where you are today. Understanding how your super is invested, how it compares and whether it's aligned with your goals helps show whether you're heading in the right direction. Source: MLC The information in this article does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document. Principal Wealth Management Pty Ltd trading as BMO Financial Solutions ABN 53 109 336 601 is a Corporate Authorised Representative (CAR 277821) of Capstone Financial Planning Pty Ltd ABN 24 093 733 969 Australian Financial Services Licence (AFSL) No. 223135.

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By Jude Schofield • October 7, 2026
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