5 Strategies to Reduce Business Costs

Starting and running a small business can be expensive. A variety of external factors can influence your operating budget: an uncertain economy, a shifting workforce, or the cost of raw materials. A successful small business will always have its eye on the bottom line and look to reduce business costs where possible. Here are some strategies to consider.

What Are Business Costs?

The costs of running a business are often described as “overhead” or “operating expenses.”

Some required costs don’t contribute directly to the product or service your company offers. According to Investopedia, these costs may be broken down into several categories, including fixed, semi-variable, and administrative.

Fixed costs don’t change if the company brings in more or less revenue, and may include:

• Mortgage or lease payments for your work or manufacturing space
• Salaries
• Legal and accounting fees
• Insurance premiums
• Licenses or permits

Semi-variable costs may include:

• Electricity: fee to be connected to the grid, variable cost according to usage
• Internet access: required cost to connect, variable speed cost according to company demand
• Bonuses or commissions on top of salary: variable according to employee and company success
• Taxes: some (payroll, unemployment) are fixed; others fluctuate according to raw materials purchase and subsequent revenue
• Maintenance: minimum facility maintenance is always required, but increased usage can demand more attention

Administrative costs include employees and business expenses such as:

• Support staff who aren’t directly involved in generating revenue
• Office supplies and furnishings
• Employer-provided technology like computers and printers
• Traditional break room-type perks, such as free coffee or snacks

Other expenses include costs that are directly related to the good or service your company provides:

• Raw materials for manufacturing
• Marketing and advertising
• Research and development
• Transportation and travel

5 Strategies to Reduce Business Costs

For each type of expense, there is room for scrutiny and cost reduction.

Implement Remote Work 

• Allowing employees to work from home reduces the need for a large office space with its associated maintenance and overhead expenses. 
• Required in-person meetings can be held at a temporary location for a fraction of the cost of monthly rent. 
• Workers save time and money on commuting and enjoy a more flexible work schedule, which can contribute to positive company morale.
• The company will spend less on office supplies and furniture. 

Audit Vendors

• Consistently compare prices for office supplies or manufacturing materials to ensure you’re not overpaying for the same or similar products.
• Frequently renegotiate contracts for services like cleaning, garbage pickup, or supply restocking to secure the best deal. Prices will often creep up throughout a contract without someone noticing. 
• Evaluate insurance policies to make sure you don’t have duplicate coverage or are paying for properties or vehicles you no longer own. Consider carrying higher deductibles to reduce premium costs.

Minimize Travel

• Substitute virtual technology for in-person meetings where travel is required.
• Set budget caps for hotels, car rentals, and flights.
• Give employees a voice to help prioritize important travel vs. work that can be achieved virtually. Seek input from employees to determine if attending an event like a trade show or visiting customers in person is beneficial and worth the company’s budget.

Evaluate Traditions and Policies

• Consider events like the company Christmas party or catered meetings. Do they exist because it’s always been done, or because they’re truly valuable? Consider ways to replace those with a gift or a bonus that could cost much less.
• Scrutinize policies such as making copies of files, printing documents for storage, or mailing physical documents to see if electronic options exist to save money on time, paper, postage, and storage space.
• Survey employees about common company practices to determine where changes will not only save money but be welcomed by employees.

Streamline Hiring

• Invest in hiring software like WorkforceHub to keep hiring data well-organized and offer timely and efficient communication to potential employees.
• Create a robust onboarding program to increase retention and show new employees they are valuable from the first day.
• Use department heads and managers to help analyze the current organizational structure and make thoughtful changes. Layoffs can be a blow to morale, so approach this task with caution.
• If your company struggles with open positions and needs quality hires fast, consider an employee referral scheme that motivates current employees to invest in the future success of the company.

To achieve long-term success, all businesses will likely be forced to reduce costs in response to changing economic forces. With some careful analysis of current practices and future goals, your company can make the necessary adjustments to move onward and upward.