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Cost Reduction Models

Revenue is vital for the growth and survival of your organization and the maintenance and future release of your digital solution, but it is not the only factor. To evaluate your organization’s financial health, spending must also be considered.

When costs exceed revenue, your organization will have a negative net income, or a net loss. To avoid this situation and ensure the financial sustainability and impact of your digital solution, you should act to reduce costs, maximize liquidity, and capture savings.1

Key Resources

Keeping an eye on costs can help organizations of all sizes expand their mission, any solution must be cost driven right from the start if it is to be successful and sustainable.2 Use the cost reduction strategy cards to stimulate ideas for how you might reduce costs in your business model. We recommend doing the following with your team:

  1. Set aside 60 minutes.
  2. Ask participants to read through the cards for about 10-15 minutes and then choose two or three cards that they think hold the possibility for reducing costs in the business model.
  3. Discuss the cards that members of your team have chosen.
  4. As a group, prioritize and choose which of the cost reduction strategies you would like to take forward and test.

Organizations should seek in-kind gifts or contributions, and identify models of service that may help in reducing costs and realizing savings.

In-Kind Contributions​

In-kind contributions are donations of goods, services, or time—as opposed to cash—that can be used to support an organization’s mission. Keep track of these voluntary contributions in a chart of accounts.

Goods in Kind

Goods in kind are physical assets that are donated for organizations to use for social impact.

Services in Kind

Services in kind are professional services provided by one organization to another without a fee.

Time in Kind

Time in kind is when an external organization or business facilitates the volunteering of its staff.

Low Bono

Low bono is when services are provided to an organization at a lower rate or on a cost basis.

Crowdsourcing Models​

Crowdsourcing models harness the time, skills, and resources of large, disparate groups of people, often using online platforms. These contributors may be paid on a pay-per-task basis or may work as volunteers. This helps organizations reduce their overhead costs for traditional staff and foster opportunities for collaboration. Additionally, this model may offer organizations an easy way to design and develop new products, build new connections, and develop talent that may also assist with costs and long-term sustainability. Organizations can develop their own volunteer community or use a crowdsourcing platform.

Volunteer Communities

This model involves recruiting, training, and supporting an online or offline community of volunteers.

Platform: Ideas

Using an ideas crowdsourcing platform, an organization can ask well-defined questions about a problem and pay members of an online community for innovative ideas or solutions.

Platform: Freelance Workers

Platforms for freelance workers allow organizations to hire people with specialized skills on a temporary basis for a reasonable sum.

Product Lifecycle and Channel Activities​

Cost innovation strategies can be found in how your products or services are designed, sourced, and delivered.3 (See Value Proposition.)

Reuse

This model involves looking for ways to adapt and enhance existing products, resources, and approaches instead of starting from scratch.

Revising the Service Model

Another way to manage costs is to evaluate your service model and, if needed, rethink its cost effectiveness.

Outsourcing Activities

Outsourcing activities such as training and marketing services can help an organization to not only reduce costs, but also promote growth, scalability, and long-term sustainability.

Insourcing Inputs and Activities

This strategy involves organizations managing input costs by opting to produce (or insource) certain inputs or activities themselves.

Forging Partnerships​

From supporting your organization by paying for your overhead costs to enhancing your products and services to increasing outreach efforts, partnerships can help organizations improve efficiency, impact, and sustainability. Defining what you want to get out of this collaborative relationship is essential.4 (See Partnerships.)

Getting Others to Pay for Overhead Costs

Partnering with other organizations, including private-sector companies, to help pay for your operating costs in exchange for branding privileges and/or access to end users.

Sharing Resources With Partners

This model focuses on partnering with similar types of organizations to share cost centers.

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Created by Cristina Alves, Eliana Fram, and Ian Gray

Key Takeaways​

  1. Controlling costs is key to business model sustainability.

  2. Opportunities to lower costs can be found within your organization and by leveraging partners.

  3. Using a cost reduction strategy can enhance your organization’s potential value.

Complete the following in your Business Model Sustainability Canvas:
  • Indicate which cost reduction strategies your organization will be using and their value.
  1. Deloitte. “Strategic Cost Transformation.” (2019).↩
  2. MacKrell, L.l., Belton, A., Gottfredson, M., Fisher, J. (2017). “Cutting Costs to Increase Impact.” Stanford Social Innovation Review.↩
  3. Ibid.↩
  4. Chung, E. “How These 3 Nonprofit Partnerships Are Making An Impact.”↩