If your business expenses keep going up while your profit margins are going down, you’re probably thinking about trying to do some cost-cutting. After all, you probably don't want to raise your prices yet again. The trick, of course, is to reduce costs without sacrificing quality.
It’s not an easy feat – but when it works, everybody wins. You may be able to continue with business as usual without irking your customers by making them pay more for what they need or want. You also may find that your business is simply more fiscally fit by looking for areas in your business where you can reduce costs. A cost reduction strategy may pay off in other ways, too. While your competitors are being weighed down by business expenses, you may find that your company is more agile, with the financial freedom to invest into more growth opportunities.
So if you’re looking for better cost-cutting strategies to lower expenses without hurting your brand, fortunately, you have options.
1. Look at your energy costs.
This is one of those cost-cutting strategies that, once implemented, can really pay off. Granted, you may have to spend a bit at the outset. For instance, if you’re going to install solar panels on your brick and mortar building, that may cost money – likely thousands of dollars. Still, businesses that install solar systems between now and 2033 are eligible for a 30% investment tax credit or a 2.75 cent/kWh production tax credit if they meet labor requirements issued by the Treasury Department or are under 1 megawatt in size.
But even if you have to spend some money upfront, if your business can find a way to manage your energy costs, you could potentially see savings for years. The good news is these savings may not necessarily require spending tens of thousands of dollars.
“Many companies overlook this, but substantial savings can be had with a small investment in smart technology. Employing energy-efficient systems like smart lighting or advanced HVAC systems that can be controlled via apps can cut down energy bills by up to 20%,” says Chris Kille, founder of two businesses, Payment Pilot, which provides payment processing services, and Elevate Outsourcing, a virtual assistant company.
Kille suggests talking to an energy auditor who can offer specialized insights tailored for your business.
2. Buy in bulk more often.
If you’re catering to shoppers, it can be easy to forget that your business is a consumer as well. You might reduce costs and boost sales without discounting simply by smarter shopping.
“Buying office supplies in bulk at office supply stores and warehouse stores [...] may save you some money, especially when those supplies are on sale,” says Eileen Roth, an organizing expert who specializes in business consulting and the owner of Everything in its Place.
Kille also suggests that businesses shop during holiday sales to take advantage of any special deals.
And, of course, you may want to adopt a policy to buy supplies in bulk online in order to save you or your staff time so that nobody’s standing in line and wasting gas driving to and from a store.
Kille suggests joining industry-specific group purchasing organizations, or GPS, “that leverage collective bargaining to get substantial discounts from suppliers."
"This is especially beneficial for SMBs that might not have the volume to negotiate better rates individually," Kille says.
“Many companies overlook this, but substantial savings can be had with a small investment in smart technology." – Chris Kille, founder of Payment Pilot and Elevate Sourcing
3. Find less expensive suppliers.
If you already have vendors who you purchase business supplies from, you may want to think about strategic sourcing every once in awhile to see if you can do better with someone new.
On one hand, if you’re happy with your suppliers, there’s something to be said for remaining loyal. But on the other hand, it can be easy to become complacent and forget that there may be other, better suppliers who can offer you business supplies at a better value. It's a decision you'll have to weigh carefully.
Speaking of weighing things carefully, Kevin Lamberth, general manager of Central Carolina Scale, suggests taking a look at using local suppliers over large corporations.
“Unlike large corporations, these enterprises offer tailored, personalized services, like a custom-made glove for your needs,” Lamberth says.
“Start by listing your major corporate suppliers and exploring local alternatives, potentially uncovering cost-effective options,” he suggests.
It’s also the right thing to do, Lamberth says: “Embracing local suppliers not only saves money but also bolsters the community and promotes responsible business practices."
Of course, switching out a big name supplier for a local one may not work for everyone, but Lamberth says that Central Carolina Scale recently took a hard look at their office supply provider – “a national chain" – as costs continued to rise. He says that they wound up working with a nearby family-owned office supply store.
“The outcome was impressive, with a 28% reduction in annual expenses, all while enjoying personalized service and high-quality products. The local store catered to our specific needs, ensuring timely deliveries and fostering a valuable community connection,” Lamberth says.
4. Focus on your profitable clients.
There will always be some unprofitable clients – like the customer who comes into your restaurant and sits at a table for four, orders a side salad and a cola, and sits there on his laptop for three hours. You probably aren’t going to send him heading to the exits, nor should you – maybe he'll come back another time and spend a small fortune.
But you can and should consider doing all you can to retain your high-paying or frequent customers, by offering perks like a loyalty program. Or, if you’re a business servicing other business clients, you may simply want to gently tell your slow-paying clients that you’re unable to work with them right now due to your busy schedule.
The point is, consider taking a look at your customer lifetime value; if you have extremely profitable customers or clients, you should want to do everything you can to keep them happy. If they’re constantly spending, obsessing over cutting costs can become a little less important.
5. Outsource some of your company's tasks.
An outsourced supply chain may help you with cost cutting – and it may not. There’s a reason companies do things in-house, and there’s a reason that many corporations have an outsourced supply chain. Every business situation is different. Still, there’s definitely an argument to make for outsourcing some business expenses to cut costs.
6. Reduce uncollected revenues.
Keep in mind that – at least for some business owners – you might not have to think about cutting costs so much if more clients paid faster.
If you can attach a late payment fee for some clients or customers, you may want to consider it. And if you already charge a late payment fee, it may be time to increase the penalty amount. Better invoicing software might help, as well. Whatever you can do to avoid being paid late is probably worth trying, except charging less for people who pay you on time. While that may sound like good incentive for the customer, you’re essentially lowering your price.
But if you receive a lot of late payments, and charging late payment fees isn’t something you want to be doing, you may want to try to figure out exactly why these payments are late. For example, maybe you need to be invoicing your clients sooner, or in a different way.
“You can outsource a variety of tasks, ranging from virtual assistants who can assist with administration and other day-to-day tasks, to bookkeepers who can keep your accounts in order. Having an additional set of hands, virtual or otherwise, will liberate up some of your valuable time, allowing you to focus on working on your business rather than just in it. Doing so can help ease any burden you may be feeling regarding your bottom line,” says Anila Lahiri, chief marketing officer at EINSearch in Palm Coast, Florida.
Some tasks you could consider outsourcing:
- IT management
- Human resources
- Logistics planning
Almost anything can be outsourced to help reduce costs. You could even outsource your outsourcing, and have a business consultant tell you what you should outsource.
7. Move fast. Time is money.
Another cost savings hack to consider is that the speed in which you deliver your services can often bring in money faster, reducing the need to continually look for cost cutting strategies.
It may be a trite expression, but time really is money. Businesses that are known for slow service can often be the ones that tend to be on the search for cost-cutting strategies, as opposed to companies that are known for getting customers in and out fast.
If you really want to reduce costs, try to reduce the time it takes from the moment your customers decides to use your business to the moment they walk away happy and satisfied.
A version of this article was originally published on March 14, 2018.
Photo: Getty Images