Cost Reduction vs. Cost Savings: There’s a BIG Difference!

By: Rick Sung

Facility maintenance providers can throw out numbers that look great on paper, but what are they actually offering you? Is it a plan for cost reduction, or a true cost savings strategy that will cut back on your expenses?

The confusion for many arises when the meanings of cost reduction and cost savings become commingled. In fact, there is a big difference in the way these tactics are used to reduce facilities maintenance expenditures. For retailers, chains, and seasonal popups, fully understanding the tactics behind your maintenance estimates can mean the difference between saving thousands or exceeding your budget.

Let’s take a closer look.

Comparing Cost Reduction to Cost Savings

In the case of cost reduction, the primary objective is to cut back on unnecessary expenses by changing your scope and reducing the frequency of maintenance services without having a negative impact on the end result. For instance, a retail store may review their facilities’ monthly floor cleaning service and reduce the frequency to a quarterly schedule during months outside their busy season.

A cost savings looks different. Rather than cutting those monthly services, a retail store focused on cost savings would find a way to compress the service costs while still fulfilling the same objective. One way to do this is by leveraging a service provider network in conjunction with a total cost approach for facilities maintenance.

Each maintenance provider you consult may guarantee different amounts of savings based on the tactics used and the billing model they follow, so you will want to look deeper into how your service provider will achieve those numbers. Are they using an hourly rate approach to cost reduction? A total cost approach makes successful budgeting a lot easier, yet many providers cling to the hourly rate approach, preventing their customers from achieving the desired results.

Moving Away From Hourly Rates to a Total Cost Approach

There’s a lot of legacy thinking in the facility maintenance industry that revolves around the hourly rate approach. The problem is that this approach doesn’t account for additional service trip costs, emergency fees, and overtime charges that can and often do occur. With this way of thinking, you will never be able to achieve a true cost savings—no matter how you take on maintenance budgeting.

Since January 2017, 24 retailers have announced closings of over 4,500 locations across the country, and that can be credited in part to legacy thinking. The fact is, you can’t survive looking at your expense categories through the same lens.

You should be asking yourself, what can you do differently today that you weren’t doing yesterday?

That’s where the total cost approach comes in. Facilities maintenance providers that use the total cost approach look at your bottom line and create maintenance strategies around those concrete numbers as opposed to loose estimates based off hourly fees. The estimate you receive from a total cost approach will be far more accurate because your bottom line won’t be affected by surprise service charges.

Get On Board With a True Total Cost Facilities Maintenance Strategy

NEST offers a total cost approach to facilities maintenance that keeps in mind your bottom line and maintenance needs. With our technology solution, consulting and Independent Service Providers, we combine technology, process improvements and resources producing actual cost savings.

If you’re ready to get away from hourly overcharges or would like to learn more about our method behind the total cost approach, please contact us at 844-650-3721.