Frugality is considered a very important living skill by many. It is the practice of spending as little as possible, or as efficiently as possible to avoid any unnecessary expenses. Undoubtedly, this practice could prove to be very helpful when it comes to running a business. The owners or managers who adopt the frugality approach spend to provide the goods or services to their customers instead of impressing their employees with luxurious interior décor or furniture.
Frugality in the business context
Spending carefully in a business could be an act crucial to its survival. Frugality is the essence of the concept of cost control, which is not new to entrepreneurs, but many tend to slip at some point in their business’s life or others. The importance of frugality shouldn’t be forgotten irrespective of the size of the firm because cost ineffectiveness, for most businesses, could result in their competitors taking over their market share, forcing them to shrink or even shut down. The importance of frugality for companies can be imagined by the fact that Jeff Bezos has laid frugality as a principle of his business: Amazon. The Amazon office was furnished up with door desks to save costs.
Advantages of Frugality In Businesses
Competitive Market Pricing
Many businesses can grab the market share from their competitors because they have a cost advantage. These businesses can control their expenses since they are in a position to price their products at a lower price and still make profits as their costs are low. This frugality approach gives them an edge over the competitors because even if they try to match the prices that their competitors charge, they will not be able to make profits and eventually lose their market share. The markets usually run on the principle, “survival of the fittest” thus, to remain in business, all the firms and companies need to be efficient and offer competitive market prices, which can only be done by cutting down unnecessary costs. With this competitive marketing pricing, it usually means a larger volume of customer purchases.
Higher Profit Margins
Apart from being able to charge competitive market prices, businesses can enjoy a greater profit margin when they are frugal in their expenses. This means that if a business has prices similar to that of its competitors, but manages to cut down on its costs, it will be able to enjoy higher profits compared to other businesses because of the greater difference in its costs.
Interest Expense Saved
When business owners or managers run the business while being frugal in their expenses, they can save money and spend it in more worthy areas. This money saved could be reinvested into the company. A major advantage of this could be the avoidance of debt. The interest on loans could be a major expense for companies. Reinvesting the profits back in the business will not only help avoid an increase in liability but also decrease the interest expense.
Even if a company needs loan financing, frugal decision making will enable him to make the right decision and go for proper funding sources rather than massive interest loans that could become a heavy burden on the business.
The above-mentioned benefits of frugality in business are just a few among the many that could be enjoyed. The best part is that this frugality principle can be advantageous to both small scale and large scale companies, thus it should be adopted by every industry.
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