It’s impossible to run a business without incurring some costs. Almost every business owner knows that every penny counts in business. For the uninitiated, operating costs are the expenses you need for the day-to-day running of your business. They include maintenance costs, sales commissions, amortizations, insurance, and labor costs. Although you cannot avoid these expenses, you must keep a close eye on them to ensure that you’re not spending more than your business makes. Your primary goal regarding such expenses is to increase your profitability, and you can achieve this by reducing your operating costs. So, are your operational costs growing rapidly? Here are some proven ways to start reducing them immediately.
Understand your current operating costs
Before you do anything about your current business operational expenses, you need to have a good idea of which areas of your business consume the most and why. That means conducting a thorough audit of your business costs and tracking their pattern over several months. For example, how much do you spend on equipment maintenance, salaries, or business insurance packages? How much does your business receive in terms of value (or your operating income) from those expenses? It is important to cover all your operating expenses, including those you might consider insignificant. Even the smallest costs can quickly add up to a considerable amount against your operational costs. For instance, if you’re leasing a coffee machine buying a used coffee machine could save you money in the long run. Knowing which areas spend more and what value your business gets from those areas will help you decide where to cut back on the expenses and how.
Identify your operational inefficiencies
You should always aim to make your business more efficient, which means identifying which areas leak expenses through inefficient processes. For instance, if your business requires transporting perishable goods, you might end up wasting a considerable portion of those products if you have to deal with heavy traffic or long commutes daily. You’ll be surprised by how much your business will lose from your inefficient transportation process and how it affects your operational costs. In this case, a more efficient option will be to invest in fridge vans, as they come fully equipped or refrigerated to allow you to transport items that need to stay at a certain temperature.
Minimize how much you spend on utilities
Whether you own or rent your business premises, utilities are something you can hardly avoid. Businesses are estimated to spend an average of $2.14 per square foot, which makes utility costs one of the most critical areas to look at when trying to cut down on operational expenses.
You can focus on two key areas to reduce your utility bills;
- Ways to limit your usage to help reduce your costs
- Find alternative or cheaper sources of energy to reduce your current usage
Start by finding out how much energy the different departments of your business use and why. Next, contact different energy suppliers for the various departments of your business and compare their offerings. Once done, you can negotiate with the various suppliers and settle with the one that offers you the best deal.
Regarding finding alternative power sources, there are some things you can do.
- Water: Always turn off your taps when not in use and install a smart sprinkler if your premise comes with a lawn. Also, find ways to reuse water where possible, and consider installing water cisterns to reduce water waste through flushing in your washrooms.
- Gas and electricity: Opting for energy-efficient LED light bulbs is one of the most effective moves you can make to reduce your energy consumption. You can also ensure that your office is properly insulated while enforcing responsible energy usage habits.
Opt for cheaper marketing strategies
With various digital marketing strategies proving more than effective, there is very little reason for businesses to spend huge bucks pushing above-the-line marketing or advertising strategies. The online space is home to about 4.88 billion people, offering a massive pool of potential clients to reach out to. You only need to employ the right digital marketing strategies for the best results.
Embrace tech solutions
Technology is designed to enhance efficiency, and when you find the right tech solutions for your business, it also helps you cut costs. Adding technology to your business operations can help reduce costs significantly by eradicating operational errors (or at least reducing the margin of error) that cost your company time and money. You can quickly automate various business tasks, increase their precision, and reduce costs from accounting software to ERP software.