Cost efficiency has become a buzz word for business all over the world. More than 65% of businesses plan to cut costs in a year, of which less than 30% actually meet their target, says a PwC study. Cost cutting is only possible if a business maximizes its efficiency.
WHAT IS BUSINESS EFFICIENCY?
Efficiency of a business is not just about managing costs, it also has to do with operational efficiency and the efficiency with which goods are produced or services are provided in a given timeframe. In simple words, a business is said to be efficient when it is able to achieve the highest output using the minimum possible inputs.
Streamlining business operations is a proven way in which small yet complex businesses like courier companies can drive down resource needs, operational costs, and increase profits, says an expert at Key Software Systems. This can be best achieved with the use of good courier management software that leverages a central database to automate business workflow and achieve greater transparency through charts, graphs and reports.
NEED FOR BUSINESS EFFICIENCY
Business efficiency is a must for the smooth functioning of a company and competitive advantages over the competition. Efficient small businesses are also major contributors to jobs within an economy.
In 2015, small businesses created nearly 2 million jobs, according to data published by the US Small Business Administration. In fact, firms that had less than 20 employees were responsible for creating more than 1 million jobs for the economy, boasting the largest gains amongst all types of firms.
The prime aim, however, of increasing efficiency for any business is reduced costs and increased profits.
WHAT ELSE CAN BE ACHIEVED WITH BUSINESS EFFICIENCY?
Financial efficiency, often calculated as the percentage of expenses over revenue, is the main aim of increasing business efficiency. It is usually calculated in the form of:
- Asset turnover ratio
- Operating expense ratio
- Depreciation expense ratio
Then comes labor productivity. Increasing labor productivity helps businesses reduce costs in terms of wages, since less workers will be needed to finish the task in an efficient way. In a courier business, route planning makes it easier for the business to increase productivity, by saving time and effort, which would otherwise be wasted due to unexpected scenarios like traffic congestion, climate change and more.
Business efficiency is also dependent on the efficient efforts made to improve its operations, which can increase the return on investment (ROI).