Many times, businesses look to increasing sales as the only way to increase profits. However, when done intelligently, cutting costs can be a faster route to realizing higher profits. Simple ways to cut costs should constantly be on every business owner’s or manager’s radar and a thorough review of cost-cutting opportunities should be conducted every year or two.
Here are nine ways you may have the opportunity to cut costs in your business.
- Look at your gross profit margins. If your gross profit margin has been decreasing, figure out why. If there’s an increase in direct costs, can that increase be passed on to the customer? Analyze the product to see if it can be redesigned or reconfigured to decrease costs.
- Review your payroll costs. Payroll costs are a major cost in most businesses. Is there an opportunity to implement a more efficient plant layout or automation to reduce labor needs? Can your business use temporary employees and subcontractors during seasonal fluctuations? Review your employees’ classifications for workers’ compensation to ensure they are properly classified. Review your group insurance plans and consider higher deductibles for lower premiums.
- Review your phone and postage costs. Is there a comparable phone plan at a lower cost? Can your business save money by using different shipping and receiving carriers?
- Review your credit policies. The longer it takes for you to get paid, the greater the risk of loss. The 80/20 rule states that 80% of your revenue is generated by only 20% of your customers. If this is so, review the other 80% of your customers to determine if you’re able to continue serving them cost-effectively. If not, your time will be better spent acquiring new customers.
- Analyze your inventory levels. Can you rework obsolete inventory or sell it for salvage?
- Review your fixed assets. Dispose of machinery and equipment that is no longer being used. Before making any purchases of major assets, determine if it would be better to purchase or lease those assets.
- Review your purchasing policies, as well as your costs of supplies, products or raw materials. Compare pricing from several suppliers. Either switch suppliers where appropriate or renegotiate with your current suppliers for better pricing.
- Ask your employees for suggestions on ways to reduce costs. While asking for employee suggestions can result in significant savings, be wary of quick fixes that have no impact or could be more costly in the long run.
- Review your expenses on a regular basis.
While these nine strategies can help your business cut costs, there may be other opportunities specific to your business. Interested in seeing if you’re missing any cost-cutting opportunities? Contact us!