The key to successfully creating and operating a small organization is establishing efficient strategies for spending. By incorporating cost cutting plans into the business model, overall productivity and profitability can improve.
Here are the top ways to cut everyday costs, while also expanding your brand's net profit margin.
Understand Your Profitability
Before plans for cost reduction can be implemented, it is crucial to identify the organization's profitability by tracking spending and revenue.
The best way to do this is to configure the net profit margin, which will indicate the percentage of revenue after all business expenses have been subtracted from sales. It can be calculated by-
( Net Profits / Net Sales ) x 100 = Net Profit Margin
By pinpointing the net profit margin, trends in sales and revenue, as well as information on what expenses can be safely reduced will be clear.
To streamline this process, implement business reporting software that can provide accessible data reports on operational progress. These cloud-based tools also identify how to reduce operating costs and how to maximize profits.
Track Utilities and Overhead Spending
1. Install a Programmable or Smart Thermostat
Use a programmable thermostat so that the AC or heating will only run during hours of operation. Smart thermometers are another alternative for monitoring temperature preferences and energy usage.
2. Implement Energy Saving Tools
Not only will saving energy be sustainable for businesses, but it will also reduce expenses. There is a variety of energy and cost-efficient methods, such as-
3. Turn Off Appliances After Hours
- Dual Pane Windows - These are windows that have two sheets of glass that are separated with a space of air or gas. This allows it to mitigate the transfer of hot or cold air into the facility. These windows will reduce the need for AC or heating.
- Solar Water Heater - Since this method uses solar energy, it will lessen the costs of electricity, gas, or oil necessary to run traditional water heaters.
- Blackout Curtains - Using light-blocking curtains will reduce the amount of light that shines into the building, reducing the transfer of heat and the need for AC.
- Weatherstrip - Heat or AC inside a facility can escape through windows, doorframes, and air vents. Using weatherstrips to seal these small spaces will prevent wasting energy.
Once the workday is over, all lights and machinery should be turned off. Unless the appliance must run overnight, like a refrigerator or freezer, everything should be shut off to reduce electricity expenses. 4. Go Paperless
Not only is minimizing paper usage eco-friendly, but it will also cut the extra cost of purchasing paper materials. Digital systems can be utilized, such as payroll software, to reduce the use of physical paper copies. If paper must be used, establish a recycling program for paper goods, and encourage conservation with front and backside printing.
5. Review Subscription Plans
Some organizations depend on subscription-based services, such as telecommunication, Internet, and accounting. Review annual subscription costs and determine whether or not they are necessary.
6. Encourage Telecommuting
With telecommuting, employees would be working from home, therefore, eliminating the need to purchase a facility space or large office building.
7. Efficiently Utilize Space
Use the facility's floor plan effectively to avoid purchasing a larger, more expensive office space. By incorporating mobile devices for communication, multi-function rooms, and collaborative desks, employees will be able to work and make use of the available space given.
8. Find Reasonable Healthcare Coverage
Many businesses offer benefits packages, which include healthcare coverage for their employees. However, this can be expensive for employers. Research strategies that will help to sensibly minimize healthcare costs.
Negotiate better health care benefits with vendors. Since many health insurance companies bundle the costs for services, request for specific programs at discounted rates.
Supplies and Services
9. Replace Old Methods and Technology
Old equipment should be replaced with updated alternatives. Doing so would reduce costs related to repairs or high-energy usage. In addition, remove obsolete systems, such as landlines or fax machines, and use Internet-based services instead.
10. Reuse Supplies
Purchase gently used equipment, instead of buying new, expensive items. Many supplies, such as printers, delivery vans, packaging equipment, and furniture can be purchased second-hand.
11. Pay Vendors Early
If possible, pay invoices early to avoid interest fees. Some vendors may even offer discounts to reliable clients who complete their payments ahead of time.
Communicate with vendors and see if they are willing to barter, which is the act of exchanging goods or services in place of money.
13. Utilize Social Media Marketing
With the rise of social media, businesses have a free platform to advertise their services and products. According to recent studies, 90% of businesses in the U.S. use social media for marketing. Instead of spending money on traditional advertising, small businesses can actively build their social media following and engage with widespread clientele.
14. Effectively Employ Word of Mouth Marketing
Another economical form of marketing is through word of mouth, which typically comes in the form of customer referral or ambassador programs. These strategies depend on using existing clients and influencers to promote a brand to new audiences through organic discussions or social media.
15. Strengthen Time Management
Every minute should be dedicated to productivity. Inefficient time management can be remedied by enforcing deadlines or using software systems to track time. Improving communication systems can also strengthen time management, in which employees can speak directly with their supervisors and plan out their projects.
16. Employ Freelancers or Independent Contractor
Since freelancers and independent contractors are only paid for certain projects, expenses for health insurance, retirement accounts, and paid time off can be avoided.
17. Invest in Employees
Recruiting and onboarding new employees can oftentimes be expensive. Maintain current employees by taking into consideration how to improve perks, like granting bonuses for good work or offering health benefits.
18. Reward Responsible Spending
Some business credit cards offer benefits, such as cashback, in return for spending and for paying balances in full each month. These rewards can go towards inventory or new equipment.
19. Stay Away from Interest Charges
Small business credit cards and loans come with interest charges, which can affect the bottom line. To avoid this, look into interest-free cash, such as personal money or loans from friends and family, when building a start-up.
20. Control Costs of Location
Certain locations can be costly; therefore, businesses should be situated in a less expensive city or state. However, if relocation is not possible, there are a variety of cost-efficient options, such as-
- Search for Better Rent - Work out a deal with leasers to pay low rent on a long-term lease. There are also co-working facilities where different businesses share office spaces in the same building.
- Use Tax Deductions - While taxes for property and income will generally be static, there are local and state tax deductions that can be benefited from. Tax professionals can assist in this area.
- Calculate Labor Costs - Find out what the most efficient starting wage for employees is by considering local minimum wage regulations, as well as wages offered at comparable establishments.
More Ways to Reduce Costs
21. Share Resources With Other Small Businesses
Sharing supplies or inventory with other businesses can be done in a variety of ways, such as-
22. Always Try to Negotiate
- Group Purchasing Organizations - These groups are made up of small businesses that work together to negotiate better pricing and discounts from vendors.
- Industry Specific Associations and Networks - Trade associations and business networks offer member discounts on supplies. In some cases, these groups will also assist members with vendor negotiations.
- Cooperatives - Cooperatives are enterprises that share profits and resources. Commonly prevalent in agriculture, cooperatives help producers with profit sharing and rebates.
- Tool Lending Libraries - Some libraries offer high-quality, professional equipment and supplies. Borrow these resources at a small fee, instead of buying new products.
- Partner Vendors - Various credit card networks have connections with other vendors, therefore, providing users with extra discounts at different establishments.
Negotiate for discounts on bulk orders or ask if there are referral programs. This will help alleviate some business spending, especially when buying items at a high volume. 23. Purchase Responsibly
Examine bulk purchases
, especially if the facility's space is limited. Although the price of an item may be cheaper when purchasing at a high volume, little to no storage space can cause items to be damaged or may unnecessarily fill up warehouse space, which can increase holding costs. 24. Refine Employee Perks
Evaluate the various perks offered to employees, such as catered lunch or company-wide outings, and its profitability. If these perks are increasing costs, look into cheaper social events that can boost morale while being cost-effective. For example, instead of a day at a theme park, there can be a company picnic in the city. 25. Explore Different Options
Vendors have competition in their industry and this can be leveraged when buying essential services. For example, a supplier may offer discounts to clients who are coming from their competitors. 26. Reduce Travel Expenses
Utilizing telecommunications or virtual conferencing systems will reduce the cost of traveling to out-of-office meetings. Company-paid travels to conventions and gatherings can be limited to specific teams, in which information can later be relayed through telephone or online meetings.