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· Posted on
February 21, 2024

What are cost synergies?

It might be the biggest buzz word in the corporate world, but synergy means good things for companies.

What's the key learning?

  • Cost synergies are when two companies merge, and save cash on operating costs and other expenses as a result. 
  • Essentially, if there’s two of anything, merging them together is likely to result in a cost synergy.

Cost synergies are when two companies merge, and save cash on operating costs and other expenses as a result. 

The cost synergy (or saving) can be about lots of things, like:

  • Redundancies 
  • Equipment and tech
  • Physical locations
  • Supply chains.

Essentially, if there’s two of anything, merging them together is likely to result in a cost synergy.

Give me an example, guys

Think about it, Flux fam. 

Company A merges with Company B to form Company AB.

Company A has a 100-person strong sales department. So does Company B. But Company AB probably doesn’t need a 200-person strong sales department, so they lay-off 50 sales team members at $50,000 each. That’s a $250,000 cost synergy right there.

Company A and B also have their own offices, and they’re paying rent to be there. But Company AB will only need one office. That office is likely to cost less than the two offices combined = cost synergy.


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