How to reduce operational costs with IT solutions

There are two ways any business can increase its profit: by increasing its total revenue or by reducing its expenses. That's why business owners should not only worry about selling more products but also about optimizing sums that are spent on their business's maintenance and administration. A part of these expenses is called operating costs.

In this article, we will delve into the concept of business expenses and explain how to reduce operational costs with the help of up-to-date IT solutions.

What are operating costs?

Operating costs are sums of money businesses spend on maintenance and administration daily. Operating costs can be calculated with the formula:

In this formula, the cost of goods is the resources spent on producing goods and services that the business sells. The cost of goods can also be called the cost of sales. These expenses are closely tied to the following categories:

• Expenses for direct materials
• Costs of direct labor
• Rental expenses for the plant or production facility
• Compensation and benefits for the production workers
• Equipment repair costs
• Utility costs and facility taxes

Besides, there are operating expenses or OpEx that any business faces during its day-to-day operation. OpEx includes the following expenses:

• Rental expenses
• Employee salaries and wages
• Fees for accounting and legal services
• Charges incurred from banking
• Expenses related to sales and marketing
• Expenditure on office supplies
• Costs for repairs
• Utility expenses
• Expenses incurred for the cost of goods sold

Operating costs don't include interest expenses on loans as these expenses are considered to be non-operating. All these categories need to be accounted for in different parts of the company's accounting books, so they can be thoroughly analyzed. Based on the examination, the analyst comes to conclusions on what the revenue-generating perspectives are and how the company can reduce operational costs without worsening the volume of sales.

Example.Let's imagine a logistics and transportation company involved in product delivery. The company owns several warehouses and vehicles as well as rents an office. The purchase of real estate and cars is to be included in the cost of goods or COGS. At the same time, rent fees, employee salaries, and resources spent on fuel will be categorized under operational expenses. They are necessary to maintain the functioning of the organization.

Why do we need to reduce operational costs?

There are several reasons for startups and large enterprises to thoroughly calculate and reduce operational costs. Here they are:

• Capture the moment when your company starts losing net income — your enterprise may have several branches, offices, and many departments. By analyzing the operational costs of each of them you may find the weak points that lead you to the loss of revenue.
• Make it easier to receive investor funding and apply for loans — To make a decision, banks and investors evaluate a company based on the operating income figure. They compare the financial results of the company with those of similar companies in the industry. To calculate this indicator, the company needs to know its operating expenses.
• Prepare for low sales season — some specialists recommend companies create an emergency fund for unexpected situations. The emergency fund should be equivalent to two months of monthly operating costs. To find out how much needs to be saved, you need to count the precise number. With this safety cushion, the company can survive through a crisis, while seasonal businesses can prepare for the season of low sales.

All in all, to run your business effectively, you will have to keep an eye on your operational costs and thoroughly analyze them. This will allow you to react to unexpected situations effectively and always be in control of your finances.

How do different IT solutions and services help to reduce operational costs?

IT solutions and different types of software can help you with automating many business processes and solving issues connected to operational costs. Below, we will enumerate some of the most common uses.

Enable remote work format

Office rental costs can sometimes be exorbitantly high. At the same time, transitioning to a remote or hybrid mode of work allows you not only to save on rent but also to hire specialists from different cities and countries and get access to a bigger talent pool.

One way to automate the internal processes of the remote team is to use task management apps like Trello, Notion, or ClickUp. With their help, you can spread tasks among your team members and keep track of them. Also, you can keep essential documents there or even automate some HR processes like onboarding.

Such systems won't reduce your operational costs directly, but they will make the internal processes transparent for you and your team and allow you to estimate the performance of your team members more accurately. With these task trackers, you can easily find out how many team members are required to cover all the tasks and understand what team members are underperforming and need to be replaced or reassessed.

All in all, a task management system can help you to reduce operational costs on several things, including office rent, labor, and paper since it negates the need for physical document storage.

Help you stay on top of staffing

If you own a café, run a spa salon, or operate an auto repair shop, you know that certain periods are busier than others. During those peak times, having enough hourly employees is crucial to provide excellent service. On the other hand, during slow periods, you want to avoid overstaffing and save on operating costs. That's where a POS system can truly shine.

By utilizing a POS system, you gain access to sales reports that showcase the performance of your business at different times of the day, week, and month. These reports allow you to identify the busiest hours, days, and months, giving you valuable insights into your business's patterns and needs.

With automated tools at your disposal, you can effortlessly analyze your sales data, make informed decisions, optimize your employee scheduling, and maintain operational efficiency.

Automate accounting

Businesses often encounter various challenges with bookkeeping, which can be time-consuming, prone to errors, and require manual data entry. Accounting apps, or accounting software, offer a solution to these problems by automating and streamlining several financial tasks.

Accounting apps are software applications designed to help businesses manage their financial transactions, recordkeeping, and reporting. These apps provide a digital platform that integrates various accounting processes, making it efficient and convenient for businesses to handle their financial operations.

The implementation of an accounting system helps businesses reduce costs in various ways. Firstly, it eliminates manual data entry and minimizes the risk of human errors by automating processes and syncing with bank accounts to pull transaction details electronically. This saves time for business owners and bookkeeping staff, streamlining tasks like invoicing, expense tracking, and bank reconciliation.

Additionally, accounting software generates accurate and comprehensive financial reports, providing real-time insights into sales, expenses, profitability, and cash flow as well as saving employees from unneeded paperwork. This enables businesses to make informed decisions, optimize their financial performance, and ultimately reduce operational costs.

Reduce licensing fees

Just like with accounting, many other internal processes can be automated with the help of digital tools. For instance, HR management apps are used for employee onboarding, CRM systems for monitoring sales, task management apps for tracking employee productivity, and so on.

The problem is that almost all corporate software is not free and requires paying for subscriptions or premium features. If you have a large business with several departments that need to be automated, all the fees will make a large sum. To avoid this, you can use a single application to automate all the in-house processes.

This kind of app is called Enterprise resource planning (ERP) software whose functions allow enterprises to manage their day-to-day activities including accounting, project management, risk management, automating inventory, and supply chain operations all within one system. Transitioning to use unified ERP software can result in lower subscription fees and reduced operational costs. Also, it allows keeping all necessary data of the enterprise in one place.

Many world-renowned companies already use this type of software. These include Amazon, Starbucks, and Toyota. Here's a piece of the Oracle interface, an ERP that Starbucks uses.

Solve specific problems in your business

Sometimes your business flow requires a solution for a specific problem. For instance, you may hold a fruit shop and need an inventory system that takes expiration dates into account or you may have several physical stores and storages, and your drivers are overwhelmed with where they should take and deliver goods due to the poor logistics.

Although out-of-box ERPs are quite flexible, sometimes they don't take into account all the specifics, and here's where custom software comes in handy. Its functions are usually targeted at automating manual tasks as well as countering some operational cost issues.

Here's an example from our experience. The Hamperapp team approached us to develop an ecosystem of custom apps to automate their internal processes and communication between drivers, managers, and customers. This service automates the work of laundry and cleaning services in Florida. The problem is, the drivers who transported the clothes from customers to laundries tended to get lost and chose to take long paths, thus using up too much petrol.

To reduce operational costs for Hamperapp holders, our team has installed a unique algorithm into the driver's app. We created a feature that automatically found the optimal route from customer to laundry. The algorithm was based on Google Maps API and coded by our engineers. As a result, the Hamperapp's drivers started spending less on fuel.

Delegate tech tasks

One of the most expensive endeavors is maintaining an in-house team of IT developers. According to recent data, the median annual salary for a developer in the USA can reach $100,000, and in other parts of the world, the cost of a development team can also be significant.

That's why it is much more cost-effective to outsource the support of your website, application, chatbot, and other minor tasks to a third-party IT service provider. Fortunately, IT agencies can now be found in any country, allowing you to pay for the completed work rather than monthly salaries for an entire team of developers. This approach allows businesses to save on labor costs while ensuring professional support and satisfactory results.

A case of restaurant management system development from Ronas IT experience

Our team gathered some experience in developing apps that help automate internal processes as well as reduce operational costs within an enterprise. We'd love to share our expertise below.

Project Idea

A restaurant owner has recently approached us with a pressing need for a UI/UX design and coding of a restaurant management system. The challenge was to create a tablet app within just four months that could handle point-of-sale, staff management, orders and sales tracking, and table management. We focused on designing an intuitive interface to enhance the waiters' work, provide exceptional restaurant service as well as help the owner to cut operating costs.

Discover phase

At first, our manager initiated a call with our customer and found out about the problem the restaurant holder had. It turned out that the restaurant owner needed a single tool to automate all the processes including inventory management, employee scheduling, and table management. The problem was that keeping track of these tasks in different apps and places was overwhelming and caused human errors and miscomprehension among employees. With the single app, all the processes would become transparent for the restaurant owner.

Then, we researched the workflow of the waiters, created the list of features, refined it with the entrepreneur, and created an estimate for design and development.

UI/UX design

To plan the UX of the app, we have created the mind map to reflect all the necessary app features and create wireframes to test the interface with the waiters from the team to understand if it is convenient for them.

We also created a design concept that reflected the main features of the UI design. It was decided to create the dark mode of the app since waiters sometimes need to work late in the evening when it is more convenient to use darker interfaces.

We also added some light accents. They were needed to highlight cards with different dish categories. This helped the waiters to navigate the menu and orders more easily.

App features

Together with our customer, we decided to implement the following app features:

Authorization

We made it possible to sign in to the app by entering a personal PIN code. This app is supposed to be used by a team of waiters who need to switch between tabs and accounts quickly. This prompted us to design a quick and simple sign-in process.

Menu

Waiters can enter the digital menu and add necessary dishes to their order. The system shows if the kitchen runs out of some ingredients and the dish is unavailable, so the waiter could warn the customer about that.

Payment

The application provides installed point-of-sale features. The restaurant visitors have the flexibility to settle their bills using cash, a bank card, or an e-wallet. To enhance the payment experience, we incorporated an NFC block to facilitate convenient contactless payments. Furthermore, we integrated a dedicated screen that enables the seamless inclusion of tips in the waiter's payroll.

Accounting features

The created restaurant management systems can generate reports that provide an overview of revenue generated during a specific period. These reports may also calculate taxes applicable to each transaction and generate tax reports necessary for financial compliance. This feature helps to calculate the revenue precisely and optimize accounting fees, which helps reduce operational costs.

Dashboard

The dashboard provides analytics on each waiter's work and the most popular dishes, which are crucial for reducing operational costs. With this dashboard, the managers can check the productivity of each waiter, find out what days more waiters need to be scheduled, and regulate the fulfillment of the inventory.

Reservation

The reservation table is designed in the form of a convenient timeline. This intuitive feature allows waiters to efficiently prepare tables and reserve guests' preferred seating.

Tables

Also, there is a list of tables along with their reservation status. This screen serves as a helpful tool for waiters to promptly locate available tables and efficiently seat guests in those spaces.

In addition to these features, we also created a screen where all orders are reflected at once and developed a mobile version of this app, in case some waiters find it more convenient to use mobile devices during their work hours.

Development

Our customer required us to create an application that functions equally well on iOS and Android platforms. That's why we offered to develop this restaurant management app with React Native. This technology allows developing a single code base and using it to create apps for both operating systems. This approach is more resource-efficient compared to developing two separate native applications. The extra tools compatible with React Native like Expo also help to save maintenance costs after the release.

More than that, we have already developed several apps with React Native, and that's why we have a lot of code libraries and pieces that we can reuse to develop applications faster and complete the work within a very short timeframe.

Also, we integrated a few APIs. First of all, we enabled in-app payments with the help of Stripe API. With the implementation of the Stripe SDK, app owners can secure data transfers and protect sensitive information without storing payment details on the device. This mitigates the risk of reputation damage for the app owner.

In addition to Stripe, we utilized the OpenTable API, which allows app and website owners to enable table booking functionality and raise their operational efficiency. Also, we implemented Google Analytics API to create the dashboards for collecting crucial in-app stats.

Release to the stores

When the design and development stage was completed, our team helped the customer submit the app to the Google Play and App Store. The process went smoothly, and the app was reviewed by stores and released within just 1.5 weeks.

Results

Our team has managed to design and develop the app within just 16 weeks. We implemented features to automate the manual processes of waiters and reduce operational costs. With this app, the in-house processes and productivity tracking became clearer for the restaurant owners who then could track all this with just one app.

The restaurant team was so satisfied with the work, that they stayed with us for post-release maintenance. We helped to push new updates to the app after its release and fixed bugs when they appeared.

To sum up

In conclusion, various IT solutions such as CRMs, inventory management systems, and POS systems offer the potential to reduce operational costs for organizations. Enterprises like Starbucks, Toyota, and Amazon have already showcased the benefits of implementing such solutions. However, not all business requirements can be met by off-the-shelf solutions.

To further optimize operating costs in the long run, developing custom software tailored to the specific needs of the business becomes an attractive option. By investing in bespoke software, organizations can align technology with their unique processes and gain a competitive edge in their industry.