Top 10 Tips for Reducing Operating Costs
Operating costs include all of the direct and indirect costs attributed to production. The best solution is to strategically lower these operating expenses without negatively affecting the rate of output.
Solutions to minimizing expenses surprisingly do not include reducing salaries, diminishing advertising efforts, or removing employee benefits. In fact, there are a number of methods to lower cost production without negatively affecting employees. Here are the most effective ways for reducing operational costs.
1. Cut, Track, and Manage
Carefully list all of the various operating costs to see how many expenses the company is carrying. Remember that un-tracked costs tend to go unnoticed, resulting in wasted money over time. Make a point to monitor all expenses moving forward.
If there are any rarely used services, cut these expenses because they aren't essential to maintain operations.
Focus on these two types of operating expenses to see if there are opportunities to negotiate costs.
- Largest Monthly Expenditure - This is the biggest operating cost each month. If it's possible to shave one to two percent off the largest monthly expenditure it will help enormously to reduce operating costs.
- Longest-Standing Relationship - This is the supplier that the company has the longest relationship with. Leverage long-time relationships with suppliers to negotiate a discount. Research if competing suppliers offer better rates and use this information to negotiate lower prices with the current supplier.
3. Hire Freelancers
Companies don't have to pay payroll taxes or offer benefits to independent contractors and freelancers. Save money by hiring freelancers for short-term work, such as bookkeeping or website maintenance.
4. Change Employees' Spending Behavior
Encourage employees to be mindful of wastefulness. Implement policies for resource conservation, like 2-sided printing. Monitor the company's monthly credit card spending on office supplies and travel expenses. Cut back where necessary.
5. Reduce Infrastructure Costs
If possible, move to a smaller office space. Traditional offices typically have a desk and computer for each employee, a few meeting rooms, and separate offices for upper management. Replace these traditional work spaces with a shared, smaller place for employees, clients, and customers to collaborate and have meetings.
For example, find a place where staff can work together on a few longer tables and then utilize a separate room for management or meetings with clients. By creating a smaller shared-workspace, the cost of rent and utilities will be minimized.
If possible, allow staff to telecommute and work from home. Increasing connectivity due to smartphones and computers has made it much easier for remote work. This will cut down on employees' commute time because they no longer have to travel into work every day. If everyone is working from home, it will also save money on rent because there is no need to rent or purchase a traditional office building. Even allowing some staff to work from home will cut back on rent because it won't be necessary to purchase a larger, more expensive work space.
7. Cancel Unused Services
Look at all of the company's expenses from the last six months to see if there are any non-essential services or memberships that are still being billed. Make sure to cancel any service that hasn't been used in the last 90 days. Reassess all utilized service providers and shop around to see if there are less expensive alternatives. Or, see if it's possible to re-negotiate with a service provider to procure a discounted rate.
Research different spend analysis technologies that will help the company better manage its money. Spend analysis is the process of collecting, managing, and analyzing spending data to cut down on costs, improve efficiency, and monitor bills. Spend analysis software systems address how much money is spent, where it is spent, and whether the company is benefiting from its spending.
8. Utilize an Online Bill and Pay Software System
Utilizing online bill and pay software systems will eliminate paperwork and save valuable time and resources. Instead of receiving bills in the mail that could get lost or overlooked, pay them online, instead. Most service providers offer an auto-pay option where payments are automatically deducted from the company's bank account when a bill is due.
Research an online bill pay service that allows automated online billing services. This prevents missed payments and the associated late fees from occurring.
9. Employ Strategies to Reduce the Cost of Inventory
Inventory carrying costs include holding inventory in a warehouse, storage taxes, and the costs associated with maintaining and renting the warehouse. Inventory expenses also include financing the inventory, the cost of labor, material handling, equipment, and utilities. All of these expenses can add up to more than 25% of the value of the inventory itself.
To save on costs, set up a system where materials are only to be shipped on a weekly or bi-weekly basis. If this is too frequent or too little, adjust accordingly. By avoiding over ordering, less will be owed in storage taxes and holding fees. Goods will also no longer go to waste.
Working with an automated reporting system will also help keep track of inventory, preventing the problem of over and under ordering.
10. Go Green
Reduce as much energy usage as possible by going green.
Compact fluorescent light bulbs last about ten times longer than incandescent bulbs, making them energy-efficient and cost-effective. Reduce heating and cooling expenses by improving the company's windows and insulation. Encourage in-office communication via email or instant messaging to reduce phone use.
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