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Cost Savings lead to Profit Increase

The historically low-interest policy of the European Central Bank has not influence on the strategic investment behaviour of small and medium sized companies. Also external factors like Brexit do not have a measurable impact on companies’ strategic planning. This is the result of the current survey Barometer Cost Management conducted by Expense Reduction Analysts and the European Business School in Wiesbaden, Germany. 281 companies from 10 European countries were surveyed for this 2016 survey. The result also shows that 20% of the achieved savings are used to drive the companies ‘profit and are not reinvested. For 73% of surveyed companies the effects of cost management activities have faded away within 3 years.

The survey Barometer Cost Management shows that companies use savings achieved to drive their own profit margin. 20% of the savings achieved are used for this purpose. 12.5% of the savings achieved are reinvested in marketing & sales, 11.8% in machinery & equipment and 11.5% to recruit or develop staff. In particular the top 25% companies in terms of customer satisfaction and growth invest a higher share of savings in business expansion (+46%), R&D and marketing and sales (both +34%) than the bottom 25%.

“The fact that companies use savings achieved to increase profit also means that this money is not reinvested directly in their growth”, says Fred Marfleet, Chairman of Expense Reduction Analysts. “The results highlight that successful companies use the additional income to improve their situation and make it more sustainable versus competition. When new chances or business models become available these companies have the resources to react quickly and effectively.”
One of the biggest challenges for companies is to achieve sustainable savings.  73% of companies surveyed report that the effect of cost management activities is lost within 3 years. “It seems that companies need to invest more efforts to implement a cost-conscious behaviour in the corporate culture and to identify the best matching tools and KPIs”. External experts like Expense Reduction Analysts could also help to ensure that the sustainability of savings achieved can be significantly longer. 
Areas where companies identify the largest savings potentials are categories such as mobility management and supply chain. In both cases one out of five companies expects to find over 10% savings. Generally, European companies achieve savings of 4.6% of their annual turnover or 2.3 million Euro - taking a 50 million Euro turnover company as an example.

Furthermore the survey highlights that current political developments have no direct impact on companies’ strategic behaviour. These changes are rather seen as both opportunities and risks.