Embedded systems are constrained by the available memory. Code compression techniques address this issue by reducing the code size of application programs. Dictionary-based code compression techniques are popular because they offer both good compression ratio and fast decompression scheme. Recently proposed techniques [8, 9] improve standard dictionary-based compression by considering mismatches. This paper makes two important contributions: i) it provides a cost-benefit analysis framework for improving the compression ratio by creating more matching patterns, and ii) it develops an efficient code compression technique using bitmasks to improve the compression ratio without introducing any decompression penalty. To demonstrate the usefulness of our approach we have used applications from various domains and compiled for a wide variety of architectures. Our approach outperforms the existing dictionary-based techniques by an average of 15%, giving a compression ratio of 55% - 65%.