Three Reasons We Keep Paying Too Much

Have you seen some of the recent news stories about excessive government spending and waste? Yesterday I learned that our government has been paying service fees on over ten thousand bank accounts with no money in them. Zero-balance accounts, maintained at a cost of $900,000.

Huh.

It makes you scratch your head… but governments aren’t the only organizations who pay too much, or who pay for things they don’t use. Private-sector companies with a profit motive often overspend year after year. As individuals there are probably areas where we could easily save, but we don’t (I’ll put myself in that group, too). In this article we’ll look at a few of the biggest reasons why, and how to get past them. 

 

Reason One – We Undervalue Savings

I blame Ben Franklin for this – at least partially. When he said “a penny saved is a penny earned” he was right, but in modern times we’re a bit loose with the term ‘earned’ and confuse revenue with earnings. In fact, a penny that your company saves is probably worth TEN pennies in new sales. For this concept explained visually, check out the video How Important is Buying.

 

Reason Two – We Don’t Know Where to Start

Deciding to save money at your company is sort of like deciding to improve your personal health. There are so many places you could start that it can be overwhelming, and in turn that can make it hard to get started. To clarify, prioritize your efforts by looking at your biggest vendors first – the five companies you pay the most.

Then, remember that there are only three paths to savings: Conserve, Compete, or Commit.

  • Conserve – use less, use only what brings results
  • Compete – through competition, ensure the best solution, the right vendor, and a competitive price
  • Commit – reduce your unit cost, your cost of usage, and your vendor’s cost of sales by buying more

These are the high-level definitions – for more detail watch the video How Companies Save Money. But you may already have a good gut instinct about which path applies to each of those biggest vendors.

 

Reason Three – It’s Uncomfortable

Just like a decision to improve your health means facing up to more discipline and better decisions, pursuing savings often requires a hard look in the mirror.  In a team setting, it may imply that you are questioning the competency of others or their past actions. When you inform a trusted vendor that you are looking into ways to save, they may feel threatened or insulted. That absolutely does NOT have to be the case; you can talk to vendors quite directly about prices while preserving or improving the relationship. For an example of how, watch the video about How to Ask a Vendor to Lower their Price.

I encourage you to take a step toward more margin today by looking at your cost structure. Maybe a start is one of the videos mentioned above, but if you’d rather talk than watch a video – give me a call at 703.944.9676. Best, Jack.

 

 

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