The Only 3 Ways To Save Money

Some things in life are less complicated than they seem.


This is happily true about saving money, especially in business. While every year brings new management trends and buzzwords related to cutting cost, very little changes in the way companies reduce their expenses.

In fact, there are only three paths to savings, and those never change. They are:

  1. Conserve
  2. Compete
  3. Commit

That’s it. If you’re wondering how companies save money, these three cover the gauntlet: Conserve, Compete, Commit. Every tactic and tool, every technique and trick to bring down cost falls into onto one of those three pathways.

Conserve means to reduce usage, to use only what brings results.

Compete means to shop around – to bring competition into your buying process – to get the right solution, the best vendor, and competitive pricing.

Commit means making a greater commitment to a standard process, solution, vendor, or product.

These pathways are more than a handy filing system: Recognizing the three approaches is essential to getting the most out of your savings activities. Each path is quite distinctive and has an optimal use… and sub-optimal uses.

In fact, just like two effective medicines may counteract each other, savings tactics can be hurtful when combined in the wrong way or the wrong order. Consider these examples:

Example 1: a consulting company signs a five year lease, and then six months later decides they need 30% less space. They went down the Commit path (the lease) before pursuing the Conserve path (reducing their space), and it will be costly for them.

Example 2: a commercial bakery conducts an RFP and negotiates a spectacular deal (Compete) for a new machine to make quiches. Then the next quarter they realize the quiche market is not profitable and decide to stop manufacturing it (Conserve). They went down the Compete path (the deal) before they took a better look at the Conserve path (halting production on the product).

Example 3: a direct mail company that wants to find a different supplier and better price for envelopes (Compete), but realizes that another part of the company has recently ordered a year’s supply to save time and get a minimal discount (Commit). They went down the Compete path (finding a different supplier) before they did their research and skipped over the Commit path that another area had already taken care of.

 

You’ve probably started to notice a natural progression:

 

First, Conserve to confirm that you are getting value from the purchase at that level, scope, quantity, etc. This is where you decide that you do in fact WANT what you’re buying or planning to buy.

Then Compete to get different solutions and competitive pricing that will lead you to the final vendors.

Finally, Commit – to a winning vendor/solution/product for some length of time that improves your cost of buying and cost of using.

 

There are exceptions to this order. Sometimes you bring Commit tactics into the Compete phase to see how a different commitment level could affect the vendor’s pricing. Sometimes the Compete path reveals new solutions or options that result in using less (Conserve).

But as a general rule: Conserve, Compete, Commit. (This is reverse alphabetical order, unfortunately. Nothing I could do about that.)

 

So… now that you know this, are you smarter? How does this help you make better buying decisions this month? Here are two possibilities:

When a vendor (or the cable company or a health club) offers you a discount for extending your term, you don’t commit until you are happy that you are using the right amount (Conserve) and have the right vendor and a competitive price (Compete).

When budget cuts hit an important category of spending, you don’t jump right to price negotiations (Compete) but instead look first to use less and get the same results (Conserve).

In other articles here on the site, we’ll look at these three savings paths individually and discuss the principles and tactics for each. (You can find a great one here on how to compete purchases for your business.)

Also, I discuss the three ways in depth in the book How Smart Companies Save Money (Amazon #1 Bestseller!), and also explain specific savings tactics in free teaching videos posted at www.BuyingExcellence.com/free. Take a look and let me know what you think.

Here are some other articles on the site that may be helpful:

Three Steps To Saving Your Company Money: How To Compete Purchases

Expensive Sentences: Common Buying Mistakes That Can Hurt Your Bottom Line

 

 

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