There are a few ways to boost profits: increase sales, cut costs, or both. However, the speediest way to increase revenue is through cost reduction. Sure, it’s obvious, but what’s less obvious is just how to go about increasing sales or cutting costs. Often, it’s the little things that make a big difference, especially when it comes to reducing business operating costs. For entrepreneurs looking to start a business, understanding cost-reduction strategies early can set a strong foundation. We take a quick look at some tips that might just help you to spend less on keeping your business afloat and even grow your business. In these tough times, every bit helps!
1. Review Supplier Pricing Regularly
Make a habit at price-checking supplies you regularly order in. For example, an online office supply store may offer better prices than the one you’ve been using for years. When considering a change of suppliers, remember to factor in all costs including those involved in placing and receiving orders, time spent, and costs incurred in the collecting supplies or having them delivered. Unless it’s an item you use a lot of, selecting a new supplier just because they offer one item cheaper can actually cost you.
Do remember that service and quality matter too. Give new suppliers a test run to see if you’re happy with the way they work before committing to a business relationship. Another possible solution is to approach your established suppliers and tell them you’ve found a better deal. Given a chance to do so, they may even decide to adjust pricing rather than lose a client.
2. Keep Tabs on Inventory to boost business profit
Holding inventory is risky and has associated costs – there’s the space needed to store things, and you will have employees who need to do physical stock takes at intervals to ensure that real inventory matches that reflected in any electronic records. There’s also the possibility of inventory being damaged, passing its useful lifespan, or even being stolen.
The ideal is to keep as little inventory as possible and to reorder just in time to ensure there are no shortfalls. However, even this basic principle can become a little more complex than it seems on the surface. For example, you may be getting better deals for buying in bulk. Compare the cost of keeping inventory to any savings you might be getting from bulk purchasing and consider talking to suppliers about more frequent, smaller deliveries without any increase in price. The worst they can do is say “no.”
3. Have a Good Purchasing System With Checks and Balances
Small and medium enterprises often don’t have a dedicated purchasing department. But that’s no reason not to have a purchasing system. In some businesses, there’s an easygoing “if they need it to do their job let them order it” culture and it can be a recipe for disaster. At the very least have an order approvals system in which a single manager checks orders that are about to be placed and approves or declines them.
In this way, you can prevent unnecessary purchasing and overpriced purchases from taking place. Of course, you won’t deprive your staff of anything they need to do their work, but knowing where your money is going and why it’s going there is essential if you want to maintain control of your business’s finances.
4. Negotiate With Suppliers to boost business profit
We’ve touched on this already, but it deserves attention on its own. If you’re giving one or more of your suppliers a good volume of business, they may be willing to reduce prices based on your commitment to continue doing so. Early settlement discounts are well worth looking into. If you pay early or on time, you’re a valuable client, and suppliers should be willing to offer you a discount. After all, their accounts staff don’t need to spend time following up payments and they can be assured of predictable cash flow from your purchases.
5. Tried Working From Home? Maybe You Should Continue
2020 has been a difficult year in many ways, but it has taught us the value of having staff who work from home. Could this be the wave of the future? After all, the fewer staff you have working from a centralized office, the less office space you need. As long as you have good systems to track productivity, there’s no reason why you shouldn’t continue with remote work as the rule rather than the exception.
For startups or smaller teams, remote work offers flexibility and cost savings, helping them allocate resources better. However, do remember that in-person contact is important to foster communication and create connections within a team. Can you find the perfect balance? It could save your business a lot of money. By the way, you could call remote work part of your business’s green initiative – after all, cutting down on commuting is good for the environment, and if everyone did it, it could have a real impact.
6. Invest in Energy Efficiency to Save on Utilities
Reducing utility costs is a smart way to increase profits. Start by reviewing your energy usage and identifying ways to cut down on waste. Simple measures like switching to energy-efficient lighting, ensuring HVAC systems are well-maintained, or using smart thermostats can lead to significant savings over time. You might even want to consider investing in renewable energy options, such as solar panels, for a long-term reduction in electricity costs.
Additionally, for small business tools aimed at energy efficiency, explore apps or software that monitor and optimize energy consumption. Encourage energy-saving practices among staff, like turning off equipment and lights when not in use. Small changes in daily habits add up, and the reduced utility bills will reflect the effort. Don’t forget to check if your local government or utility provider offers rebates or incentives for energy-efficient upgrades. These savings go directly to your bottom line, especially for those honing their business management skills.
7. Outsource Non-Core Tasks to Save Time and Money
Instead of handling everything in-house, consider outsourcing tasks that aren’t central to your business operations. Functions like payroll, IT support, or even marketing can often be managed more cost-effectively by specialized external providers. This approach not only reduces the need for additional staff and resources but also ensures the work is handled by professionals with expertise in that field.
Many successful businesses rely on outsourcing to focus on growth strategies and core competencies. For example, outsourcing digital marketing can help improve your online presence without requiring a full-time in-house team. When outsourcing, look for providers who offer flexible packages so you only pay for what you need. While outsourcing may feel like an additional expense at first glance, the time and money saved from reduced overhead and streamlined operations often make it well worth the investment. It allows your internal team to focus on what they do best, boosting productivity and profitability in the long run.