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Rail Fares

On January 2nd 2018 – just as everyone in the UK is adjusting to overspending of Christmas – rail fares have risen.

The increase of 3.4% is the largest increase in five years and represents a real blow for passengers already paying the highest fares in Europe. Train operators have listed the profit from train fares as one of the main sources of income when it comes to covering their costs. However, not all seem that proficient at making that income stretch – Virgin Trains East Coast, for example, has had to be bailed out by the government. The fact that UK rail operators are simply not able to deliver good value to customers – and are continuously putting up fares – indicates that, somewhere within these businesses, cost control just isn’t working.

Cost control and the railways

Costs and expenses have a big part to play in financial success. Even where income is rocketing, if costs follow suit then there isn’t going to be much left over to show for it once all the expenses have been deducted. UK train operators are a good example of how a business without cost control must continuously increase its prices – and risk alienating its customers in the process. It seems that each year new prices rises are announced on the railways and each year there is a media frenzy of negative publicity as a result. So, a lack of cost control goes much further than just the bottom line – it can impact more broadly on reputation too.

Why does cost control matter?

There are two ways for a business to succeed in a situation where it is losing money: increase revenue and cut costs. As UK train companies are demonstrating year after year, price rises to increase revenue are often not enough to stop the situation from deteriorating. What’s essential is to combine this with an element of cost control. An effective cost reduction strategy could be the difference between a business that goes on to thrive and one that fails to turn things around.

Cost reduction strategy

Cost reduction is key to the financial health of any business, whether it’s a train operator or a retailer. Wasteful spending and overpaying can quickly lead to imbalance that dries up cash flow and makes it necessary to take drastic steps, such as significantly increasing prices. Rather than alienating customers with price hikes, many businesses would do better to work first on an effective cost reduction strategy that takes the pressure off.

Achieving a competitive advantage

Cost reduction in businesses is crucial to avoid insolvency but it also has a big role to play in improving competitive advantage. Rising business costs, customer expectations, saturated markets and increasingly agile business structures make gaining a competitive advantage tough. For those businesses able to achieve cost control there are many benefits, from reducing waste in the business to preserving company resources. Plus, there may be more opportunities to achieve better productivity and that all-important competitive advantage.

Accounting software can provide a firm foundation for cost control giving you visibility of spend and variances from budgets – if you’d like to know more about how SunSystems with FinanSys could help your business control costs and improve visibility of spend, get in touch today.

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