Hard vs. Soft Cost Savings, How to Prioritize and Measure Your Cost Savings

“Hard” Savings

• The purchase price of a supply is reduced.
• Reduction in labor, IF that reduction actually saves in labor costs. I.E., Janet is an hourly employee, and her hours are thereby reduced.
• Shipping costs are reduced or eliminated.
• Lowering usage quantities, i.e., we now reuse an item rather than discard it, reducing our total monthly or yearly spend on that item.

“Soft” Savings

• Lowered inventory levels resulting in improved cash flow.
• Extended payment terms, allowing you to pay later and improve cash flow.
• Improved employee satisfaction or decreased turnover rates.
• Improved efficiencies, which thereby allow you to increase production rates.
• In other words: Hard savings= Savings directly, quickly, and easily measurable on your profit and loss statement. Soft savings= Possibility for future indirect improvements to your bottom line, most often due to improved efficiencies. Although there are clearly great benefits to soft savings, they are simply harder to quantify and measure. And when it comes to “hard savings,” if you want to ensure they improve your bottom line, it’s important to educate buyers on the pitfalls they need to watch out for.

Cost Avoidance

We’ve already established that actual hard cost savings are tangible and immediately impact your financial results. Cost avoidance is, as the name hints at, a cost you circumvent through preemptive actions. Cost avoidance measures include negotiating a reduction in or eliminating price increases or eliminating the need for increased labor through streamlined processes.

It’s important to remember that although soft cost savings and cost avoidance may seem or feel less important than hard savings, that is most often far from the case. Their intangibility doesn’t necessarily align with the value they bring to your organization, especially if you are challenged with attracting or retaining staff.

For instance, improved inventory control may ensure you avoid stock-outs on critical dental supplies, safeguarding your service levels, and preventing a revenue loss. These things are vital to your organization’s health and your potential growth, and their importance is no less significant, perhaps even more so, than the purchase price of supplies. It’s essential to understand how the varying types of savings may impact your financial statements, but it’s also equally important to keep the naming conventions in perspective.

Despite the name, hard cost savings are hard worked for and can bring massive benefits to your dental practice. Underestimating their impacts may put you at a competitive disadvantage.

Leverage Method to Improve Your Cost Savings

Using a dental inventory management system helps you improve your bottom line, both from a hard and soft cost savings standpoint. To learn more about how Method can help your dental practice, contact us today to get a free demo and talk with our dental procurement experts!