Reduce business costs and improve profit: a step-by-step plan with benchmarking

Most cost-cutting rounds start with a list of every expense and the same target percentage for each one. It feels fair, and it rarely works: the items that matter get the same attention as the coffee machine, and cuts land where they are easiest rather than where costs are out of line. If you want to reduce business costs and improve profit for good, start from a comparison instead. Set your cost structure against businesses like yours, find the items where you deviate most, and work on those first. Where a cost cannot come down, the answer lies in price, mix or automation.

Where do costs rise, and what can you do about each?

Every business has a handful of cost items that make up most of its costs. For each one, the cause of the increase points to the lever.

How to reduce costs: a step-by-step plan

1. 01

   Map your cost structure

   Take the last two or three years from your accounts and express each cost item as a percentage of revenue. Separate direct costs, which move with sales, from overheads, and fixed costs from variable ones. Group the items the way your benchmark does, or the comparison will be off.

2. 02

   Compare with your industry

   Set your percentages against similar businesses with the profit and cost benchmark and the industry figures, which give European Union averages per NACE sector (the European classification of economic activities). At EU level, official sector data come from Eurostat's structural business statistics, which describe the structure, activity and performance of businesses by activity and size class (source: Eurostat, October 2026). Note what makes you different, such as owning instead of renting premises, or outsourcing work others do in-house.

3. 03

   Turn gaps into money and start with the largest

   Multiply each gap in percentage points by your revenue. That turns a vague "energy looks high" into an amount you can rank. Work on the two or three largest gaps first, and check whether a higher cost buys you something, such as faster delivery that customers pay for.

4. 04

   Renegotiate and bundle purchasing

   Tender the large contracts regularly: materials, energy, insurance, software, telecom and transport. Fewer suppliers with larger volumes usually means better prices and terms. Question specifications too, because a standard item is often cheaper than a custom one with no visible difference to the customer.

5. 05

   Automate and invest where it pays back

   Calculate the payback period (investment divided by annual saving) before you buy. Simplify the process first, then automate it, otherwise you automate the waste. Efficiency investments in energy or machines often qualify for tax allowances; see grants and public funding.

6. 06

   Review prices and mix when costs will not move

   Some costs cannot come down without hurting the business. Then the price, the product mix or the customer terms must change. Activity-based costing shows which products and customers really carry their costs.

7. 07

   Put savings in the budget and track them monthly

   Give each saving an owner, an amount and a month in the budget. Compare actuals every month: a saving that never shows up in the accounts did not happen.

Cost reduction example: a printing company closes more than half its gap

Ostley Print and Packaging prints labels and folding boxes, employs forty people and has revenue of €5,600,000. Its operating result had slipped to 3.0%. The owner compared each cost item with the average for the sector:

Fictitious Firmfocus example; the sector percentages are illustrative, not actual industry figures. The logic works in any currency.

Materials and energy explained most of the gap. Ostley cut paper waste by planning similar jobs back to back and tendered its board purchases, worth 1.0 point or €56,000. Repairing compressed-air leaks, switching to LED lighting and running the large press outside peak tariff hours saved 0.6 point, or €33,600. Cancelling unused software licences and combining insurance policies saved €28,000, and better route planning €16,800. Together that is €134,400, which lifts the operating result from €168,000 to €302,400, or 5.4% of revenue. Ostley closed more than half of its gap without touching staff numbers.

Staff costs were close to the sector, so Ostley used automation to absorb growth rather than to cut jobs: an online ordering portal for repeat customers cost €48,000 and saves order-entry time worth €24,000 a year, a payback of two years.

Automation in SMEs: where it saves money

Smaller firms adopt new technology more slowly than large ones. In 2025, 17% of small enterprises in the EU used artificial intelligence technologies, against 55.03% of large enterprises (source: Eurostat, December 2025). That leaves room for savings, but start with routine work that follows fixed rules: invoicing and bank reconciliation, order intake, planning and scheduling, stock replenishment and monthly reporting. Each saves hours that are easy to measure, which makes the payback easy to check. The AI strategy page helps decide where artificial intelligence adds more than standard software.

Small firm or larger SME

Pitfalls

• Across-the-board cuts: the same percentage everywhere ignores where costs are really out of line.
• Cutting what earns money: sales, maintenance and training look like costs until revenue or quality drops.
• Savings that move elsewhere: a cheaper supplier with more defects costs more in rework.
• The wrong comparison group: a different sector or size class gives the wrong gaps.
• Forgetting price: a cost that cannot fall must be paid for by the customer.

A cost gap is only a starting point; the benchmarking guide shows how to set targets from it. The financial tips for SMEs cover the monthly figures in which savings should appear, and Finance brings all money topics together.