One of the most important factors when evaluating the value of a business is the cost of goods sold (COGS). In other words, what is the delivery cost for a business to earn revenue?
For traditional businesses, there are many ways to reduce costs. Companies can optimize their supply chains, look for lower-priced raw materials, or negotiate with suppliers for more favorable prices. But in the era of cloud computing, the cost of a digital company may increase 10 times overnight due to sudden increases in traffic or configuration changes. For every unexpected event, the profitability of cloud computing companies will drop significantly. Therefore, the cost of goods sold (COGS) is a key focus area for any digital company.
Here are some tips to reduce costs and increase profits:
Measure first
In order to reduce costs, companies need to understand the inefficiencies first. After all, they cannot change things that cannot be measured. First, you need to agree on how to model the costs of your business and whether you plan to break it down in each product. In general, it is useful to categorize by product because it provides a more detailed understanding of the company’s costs and helps determine the costs that can be cut without affecting overall performance.
A clear understanding of the inefficiencies in a cloud computing setup will help businesses figure out what is really causing the problem, rather than making vague guesses about performance improvements. Once launched, businesses can also see if the changes made have the desired effect. To help monitor the original cloud computing infrastructure that powers each product, and to understand the cost of cloud computing deployments in real time, many monitoring tools can be used, such as CloudHealth, AWS billing CSV, Tableau.
Develop a plan and convene a team to implement
Once efficiency is identified, it will be critical for the organization to develop a plan to ensure effective cost reduction. Its plan can help the company’s engineering team work around common goals and processes within a clear deadline. When making plans, companies need to consider starting small and then gradually improve. The best approach is to start with the lowest goals identified during the monitoring phase and work steadily towards more complex and time-consuming changes.
For each project, an “owner” needs to be assigned to complete it. This can be done with a simple spreadsheet that lists who owns what and when it expires. After assigning the owner, ask to bring their teams together once a week to ensure that their cost-cutting efforts are on schedule and that they meet their deadlines. By eliminating unnecessary processes, redundant work, and “invalid” code, you can maximize cost savings.
Every point is important, and each region has a dedicated owner that can work together to save businesses millions of dollars. Other key areas that need to be evaluated include the cost of CPUs, hard drives and networks for enterprise servers, and the cost of transferring data between cloud platforms. All these costs can be controlled by some measures, and in some cases, third-party solutions can be used to reduce costs.
Establish repeatable monitoring processes
After taking measures to reduce costs, companies need to ensure that they will not be inefficient again. Having to repeat the cost-cutting process after six months is not good for the business. For continuous visibility, it is best to automate daily reporting of key costs. If you visualize it in a graph or table, you can easily see the peaks and spot them early. With some monitoring services, you can even set up automatic alerts when cost drivers exceed certain thresholds, so your organization’s team can go straight to and resolve issues.
Worth the long-term investment
Although reducing the cost of goods sold (COGS) is a difficult task for companies, it is worth the effort. For every piece of redundant code removed, as well as increased efficiency in cloud computing infrastructure, will increase business profitability. Moreover, the higher the profitability of the enterprise, the higher the valuation, which is the ultimate return brought by strong economic benefits.
