Cost control strategies for lowering expenses and boosting profits

Published

Jun 17, 2024

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Cost control is a crucial component of sustainably scaling a business and maximizing profits. In fact, nearly 73% of C-suite leaders say controlling operational expenses and overhead costs is a top priority in 2024.

But how do you control company spend across your entire workforce and optimize every transaction? Finance teams need a strategic plan, compliance guardrails, trusted supplier relations, and, crucially, the right tools in their tech stack. Here’s what to keep in mind.

What is cost control?

Cost control is the company process of lowering business expenses in the hopes of raising profits. Businesses manage costs by setting budgets, forecasting expenses down the road, and comparing actual costs to those they anticipated during the financial planning stage.

If costs outweigh budgeted expectations, business leaders can employ strategies to rein in spend—like soliciting bids from alternate vendors, instituting employee spend policies, or cutting programs.

Types of costs businesses incur

The different costs profit-minded companies can control include:

Fixed costs: Expenses that don’t change, like rent, employee salaries, and insurance payments.
Variable costs: Costs that fluctuate month by month, like corporate card bills and employee expense reimbursements.
Direct costs: Finances tied to the production or operation of goods and services, like manufacturing supplies or raw materials purchases.
Indirect costs: Indirect expenses unrelated to core business operations, like overhead or accounting department costs.

Keep in mind that business costs are either fixed or variable and either direct or indirect. Companies record, analyze, and report all these expenses together during the cost accounting process.

Benefits of effective cost control

Below are the biggest reasons why cost management is so important.

Cost savings

When you assess your company’s overall financial picture, you can spot which initiatives exceed project budgets and whether different departments are as efficient as possible with their capital. Once you identify overspending, you can take corrective action by figuring out how to better allocate resources to save money while growing your business.

Improved profitability and cash flow

Lower costs can mean higher profits, and 58% of finance leaders see improving cost control as a significant opportunity to grow their company. When you uphold employee spend policies, get competitive bids from vendors, and use software to handle administrative tasks instead of swelling your headcount, your company can become more profitable.

Cost control measures can also ensure you always have enough money on-hand to meet all your financial obligations—like paying vendor bills, processing payroll, and managing employee expenses.

Boost operational efficiency

A well-run cost control process isn’t just about saving money. It’s about taking stock of your company’s entire financial picture and understanding how to make better use of every dollar you spend. That can mean investing better equipment or technology that improves productivity, setting bigger budgets for sales campaigns to generate more leads, or even reallocating cost savings towards raising pay for employees.

Best practices for controlling costs

From setting better budgets to leveraging software automations to boost productivity, below are some tips for sustainably controlling costs.

Be strategic about your budget

An effective cost control system starts with thoughtful planning. That means setting financial objectives that support your company’s long-term vision, allocating departmental budgets, headcount planning, and carefully analyzing past spending patterns to forecast future needs. A meticulous financial plan will lower your cost variance—the difference between your baseline budgeted costs and actual costs—and prevent costly surprises down the road.

Manage relationships with suppliers

Since external goods and services can account for up to 70% of a company’s costs, high performing purchasing groups within companies can have up to six times greater cost savings, which is why four out of five chief procurement officers list cost reduction as a top job priority.

All this to say: managing your vendor rolodex is one of the most impactful ways to control spend. That means developing a list of reliable, quality, and cost-effective suppliers as well as soliciting competitive bids in search of the most favorable terms. You should also consider investing in a bill pay solution that lets you set up recurring payments from different bank accounts and automatically route invoices to the correct stakeholders for approval. This way, procurement teams don’t fall behind.

Establish internal spend controls

Employees often need to make business-related purchases for travel, supplies, subscriptions, and other expenditures. While you want to empower your workforce to make quick, necessary purchases that drive the company forward, no-strings-attached spend can be dangerous. In fact, 62% of company credit cardholders know of instances where corporate cards were misused for non-business activities.

To prevent overspend, develop, distribute, and enforce company spend policies for making corporate card purchases and filing expense reports—so that employees know what they can and can’t pay for on the company’s dime.

Also be sure to tailor your policies to specific departments and use cases—since a sales executive and junior software engineer, for instance, have different purchasing needs. You should additionally set up approval processes for expenses based on different spend thresholds.

Consolidate and report on all your spend data

Companies often scatter different pillars of their spend across siloed systems. But when you consolidate your finances onto a single platform—bringing together payroll, vendor bills, expense reimbursements, and corporate cards—you gain real-time visibility over your entire financial picture. This unified view lets you tailor policies to specific employee needs. It also paves the way for enhanced financial reporting capabilities.

Revamp your tech stack

A versatile software stack can be crucial to managing costs. Instead of cumbersome manual tasks like reconciling corporate card transactions or poring through flimsy paper receipts to match them up with expense reports to check for discrepancies, cloud-based finance platforms automate the most time-consuming aspects of monitoring and reconciling expenses.

You can also control costs by using software instead of hiring too many administrative team members. Employee management systems like an HRIS, for instance, can process payroll, streamline onboarding, help with benefits enrollment, and monitor compliance—so you can spare back office headcount costs.

How a spend management system helps you control costs

One of the best types of software platforms to keep cost overruns at bay: a spend management system. The right solution can give you unprecedented control over your company’s finances.

Set and enforce customized spend policies

Instead of reactively addressing misuse of company funds, financial management software can help you to proactively block out-of-policy spend before it happens.

You won’t spend hours manually checking policy compliance on every reimbursement request, because the best platforms can catch unauthorized claims on your behalf and automatically enforce spend policies even if they vary among roles and departments. For instance, you can ensure remote employees don’t get reimbursed for home office expenses over $500.

Create different approval workflows for different purchases

Spend management software can also ensure the right people review the right transactions. Look for solutions that use role-based permissions to automate approval chains—letting teams customize who to send transaction requests to for sign off based on the vendor, amount, category, or even year-to-date spend.

Automatically issue, manage, and revoke corporate cards

Premier spend management systems can also distribute corporate cards to employees —complete with spend limits and vendor controls tailored to each cardholder’s business needs.

As a bonus, look out for card management tools integrated with your HR processes, so you can automatically assign newly onboarded employees physical or virtual cards, change their spend controls if they get promoted, and revoke them if they leave.

Sync transactions to your general ledger

To avoid the heavy administrative burden of combing through reams of financial documents to ensure books balance out, look for systems that automatically sync your company’s financial transactions to your general ledger.

Standout spend management platforms can also automatically categorize employee spend based on the vendor and employee’s role—saving finance teams hours of work reconciling transactions and closing the books.

Pull financial data into high-visibility reports

A unified spend management system lets finance teams track monthly spend by department, R&D salaries across offices, and report on countless other metrics that help you control costs and make more impactful financial decisions.

Whether you place a premium on time-saving automations, hyper-customizable spend controls, or high-visibility data insights, Rippling Spend Management can help you keep unnecessary costs down. And if you want to make the most of your employee data, you can leverage our all-in-one workforce management platform to control costs, onboard employees, provision work devices—and so much more.

Control costs like never before

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Frequently asked questions

What are examples of cost control strategies?

Cost control strategies include (but aren’t limited to):

Soliciting bids from vendors
Reducing inventory
Outsourcing payroll
Implementing employee spend policies to limit excessive expense reimbursements and corporate card use
Using software to increase productivity and reduce administrative headcount
Refining products to limit time spent on revisions or alterations
Improving project management to accelerate completion timelines

What is variance analysis?

Variance analysis is a cost control method that compares budgeted costs with actual results. A favorable variance is when your actual project expenses are below your estimated costs. An unfavorable variance is when you spend more than you budget, which is also known as a cost overrun.

What is the difference between cost control and cost management?

Cost control is typically thought of as a subset of cost management, which is a more comprehensive process involving resource planning, cost estimation, budgeting, cost control, and a final evaluation of project expenses upon its completion.

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