Efficiency is a key factor in running a successful business. In today’s competitive environment, businesses cannot afford to waste resources. They need to invest wisely in order to achieve their goals. This is especially true for smaller businesses with limited resources.
Efficient operations help small businesses maximize growth and minimize waste. Efficiency helps small businesses cut costs, increase profits, and help the business grow. Efficiency also promotes healthy competition within the organization.
For small businesses, efficiency is doubly important because they have limited resources and can ill-afford to waste them on activities that don’t contribute directly to their bottom line.
Small businesses are running a tight ship to achieve their goals and stay profitable. Effective operations give them the breathing room they need to be innovative. So, why is efficiency so crucial for a small business, and what can business owners do to make their operations more efficient? We’ll explore this and more within this article.
What is Efficiency and How is it Beneficial for Small Businesses?
Operating efficiently means using existing resources, tools, and manpower to yield greater results. It means being more agile and leaner as an organization. A common misconception is that this term is only associated with manufacturing units. However, operational efficiency can be introduced in any business structure.
The first step is optimizing your employee’s workload, performance, and processes to minimize waste and costly errors. Your employees spend a lot of time doing unnecessary and non-valuable tasks daily.
They need to focus on tasks that add value for the client. An excellent operational strategy will look at their workday and help them reroute that energy to doing more important and business-critical tasks instead. Here are the types of business efficiency a small business can focus on improving:
Types of Business Efficiency:
Financial
You should only be spending a maximum of 30% of your business revenue on expenses and a maximum of 60% on operational costs. The percentage of your business revenue you spend on expenses will ultimately determine how efficient your business is financially. Obviously, you want to keep expenses lower to increase your profit margin.
Productivity
Productivity is the direct measure of how much work an average employee can complete within an hour with their tools and resources. It would help if you had an estimate for this in mind to create a benchmark for your employees. Project management tools will allow you to gather this data, and then you can gradually work on increasing this number as your employees get more efficient with the help of tools and better working practices.
Operations and Processes
This is the kind of efficiency we will primarily refer to for the rest of this article, as it includes labor productivity and system management within it. Operations make up the majority of your business cost, so introducing efficiency here is most critical for your small business’s overall efficiency.
Processes also contribute to how efficient a business is. Take a look at your processes like ordering, packing, shipping, etc., to see which one can be optimized to save time and money.
Energy
This one is often neglected but is so important in the long run. Your business has an impact on the environment, and it is your duty to reduce that impact. Energy efficiency improvements will not only help the planet, but it will also help your brand’s image in the market.
You can develop energy-efficient processes for production. You can use energy-efficient electronics to cut electricity costs and consumption. Taking simple steps like keeping windows open for more light and air can help you save costs and energy.
Benefits of Efficiency for Small Businesses
For small businesses that run on a limited number of employees, efficient operations can be a lifesaver. They can allow business owners wearing multiple hats a breather for working on business growth and innovation.
Let’s look at some other benefits of efficiency for small businesses.
Cost Reduction
The term cost reduction is like music to a small business owner’s ears. When you and your employees are efficient in day-to-day activities, you reduce time spent on unnecessary and costly tasks.
Increased productivity means more work gets done in less time. This reduces your dependence on stop-gap employees and external resources and vendors.
This saved money can now be used for more business-critical things like that expensive software or machinery you’ve been planning on buying for some time now.
Profit Increase
Reduced costs and more time are the perfect conditions for introducing more products or increasing production on existing ones. Producing goods at a lower cost helps you gain more profits without hurting your margin.
With more time on hand, you will also be able to take on bigger orders which will further boost your products.
Demand Fulfilment
Due to special events and holidays, almost every business is affected by demand surges throughout the year. When your employees and systems run at optimum efficiency levels, you can quickly fulfil customer demand during high demand waves.
You won’t need any external staff to help fulfil these orders. Your existing employees and systems will easily be able to meet demands and deliver orders on time.
Business Growth
Business efficiency helps you save costs that otherwise go to waste. Efficient operations ensure you have the time and money available to grow into other markets, make investments, set up new locations, or introduce innovation in existing products.
Competitive Advantage
As your business becomes more competitive, it grows in the market, and your competitors are watching. You will obviously gain a competitive edge over your competitors due to being highly efficient and producing more goods at a lesser cost.
This promotes competition because others will now be motivated to reach their productivity levels. The overall industry gets a boost and improves this way.
Tips for Improving Efficiency for a Small Business
Now that we’ve established that efficiency is at the core of a small business’s growth and success, we’re going to give you some tips that you can implement to increase your efficiency levels.
Some of these can be implemented immediately by making small tweaks, while others will need a bit more time and effort on your part.
Delegate, Delegate, Delegate
There are countless tasks on a day-to-day basis that small business owners may think they need to do themselves, but they don’t. As a business owner, you need to realize the worth of your time. You need to spend time developing strategic growth goals and not spend hours managing your company’s social media.
Take your time and understand your employees and what they’re good at. Once you have that analysis – delegate tasks accordingly, this also means that you must step away and stop micromanaging; trust your employees to get their job done.
Hold them accountable if they don’t deliver but do not micro-manage them. Instead, spend your time wisely on growing your small business.
Invest in Automation
Repetitive tasks kill innovation and eat up time daily. Luckily, we have the perfect solution for this problem – automation. Take a step back and see what tasks your employees are performing on a recurring basis, and then automate these tasks.
Many businesses don’t invest in automation because they feel it threatens their employees. However, automation can help free up your employees to spend their time doing bigger and better things.
One example is automating your email marketing campaigns and the lead generation process. When your resource is free from the manual labor of sending emails to thousands of leads, they can now invest more time in writing better lead-grabbing content.
If you’re unsure where to look for deals on business software check out AppSumo.
Make Remote Working a Norm
Perhaps one of the few good things we learned from the COVID-19 pandemic is that remote working isn’t non-productive at all. From multinational corporations to small businesses – we all operated from our homes and survived for more than a year.
Remote working employees are one less cost to your business. You will save money on electricity and seating space. It can also boost employee morale because they’re more comfortable in their homes and who wants to spend time commuting anyways?
Increase Focus
Research shows that people get more work done when they focus on doing one thing at a time and don’t indulge in multitasking. The best way to achieve this is to plan work smartly. Take a look at your tasks, and then start grouping the ones together that require the same processes.
Blocking your calendar to do certain tasks at dedicated times is also a good way to increase focus. For example, the first hour of your work day can be dedicated to checking your email and other communication tools, an hour can be dedicated to process review, etc.
Optimize Meeting Time
Meetings take up time. More often than not, we add too many people to a meeting that can be done with only two people present. This is time wasted, and it kills the day’s productivity levels.
Here are a few ways to optimize or eliminate unnecessary meetings:
- Always have a meeting agenda
- Eliminate status update meetings
- Reduce all meetings to 30 minutes
- Leave meetings where you’re not required
- Engage everyone on the call as opposed to a one-person presentation
Use a Team Management Software
Use technology to your advantage. Implement a good project management software that allows your team to keep everything in the system and easily accessible. This software also enables people to communicate and collaborate in one place, so they don’t have to use email.
Keeping all documents properly labelled and stored in one place will help reduce the time spent looking for them.
Encourage Open Communication
The biggest enemy of efficiency is ineffective communication. When employees feel scared or anxious to ask for help or clarifications, errors are made.
Errors cost money, and increased operational costs mean reduced business efficiency. It’s a vicious cycle that has no end but begins with bad communication processes.
You need to be accessible to employees and build a work culture where they aren’t afraid to speak up or ask questions when needed. Effective communication culture also means you and your employees will be able to give and receive honest feedback.
Feedback can help you improve your processes and make the work environment more conducive for your employees.
Change When Necessary
Change is vital to keep an organization moving forwards. The status quo can be comfortable, but it’s deadly to the company’s growth. Small businesses must adapt to the changing trends in the market to stay relevant and survive. You and your teams need to be welcoming toward change to achieve this. Build a pro-change company culture from the very beginning, and you will reap the rewards for years to come.
When you build systems and processes, always keep in mind that they will undergo change as time passes and new best practices emerge. Communicate this to your employees as well. Change begins with conditioning your employees, so there is less resistance when new things are implemented, and the transition is smoother.
Failed and slow transitions are costly and can be a death blow to your efficiency levels.
Frequently Asked Questions
How is efficiency an economic goal?
Increasing efficiency means the cost of producing goods is lower, which means that consumers can enjoy quality products at a lower rate. This boosts the overall economy and increases the buying power of the consumers.
What is the difference between efficiency and effectiveness?
Efficiency means achieving the intended results with the same resources by reducing waste. Effectiveness means getting better results with more value. Both are closely linked yet slightly different from one another. The above article will give you a better idea of what efficiency is so you can differentiate it from effectiveness.
What is an efficiency target?
Efficiency targets or goals are defined using the SMART method. They are short and long-term goals that you define for your employees to achieve to improve your business’s efficiency.
Final Thoughts
Efficiency is essential for all businesses and not just small ones. Being efficient will drive revenue for your business and allow you the time to grow it.
Many small businesses don’t realize how important efficiency is to their bottom line. By paying attention to areas of inefficiency, and making changes to improve operations, small businesses can save a lot of money.
In today’s competitive environment, every advantage counts, and being an efficient business can give you the edge you need to succeed.
You can make immediate small changes to increase efficiency and invest in long-term changes to make it sustainable. We hope our tips help you achieve the pinnacle of operational success!
