Want to generate more profits? Of course, increasing turnover and enhancing product margins are all common methods of improving the company’s bottom line. Have you considered these options to reduce your overheads?
Every dollar you can save in overhead costs goes straight to the bottom line.
Whereas, only a portion of a sales increase turns into profit, because of the cost of generating the sale in the first place (i.e., your gross margin).
Consider, for example, where you have a gross margin of 20%. Increasing sales by $5,000, will result in an increase of profits by $1,000 ($5,000 x 20%)
Yet, reducing your overhead expenditure by $1,000 will have the same effect on your bottom line. An increase in net profit of $1,000. So what actions can you take to reduce your overhead expenses?
Here are the top 10 things you can do to save on your overhead expenses.
1. Negotiate cheaper rates for your merchant and other banking facilities.
If you have been with your current bank for many years, it may be worthwhile asking them if they can give you a cheaper rate. Chances are, their current rates may have decreased, which you could take advantage of. Another way to get a lower rate is by asking if they could offer you a discount for your loyalty.
2. Pens and marketing gimmicks – do you really need them?
How many times have you received a branded pen and gone to do business with the company? What are you trying to achieve by purchasing the pens or other marketing material? Handing out branded pens and notepads is not only passé but also ineffective at best. Consider alternatives. Brilliant marketing strategies begin by knowing what your target customers really want.
3. Overtime and penalty rates for staff – are you managing the staffing costs well?
Are you always paying your staff penalty rates for overtime? If so, consider employing an additional staff to cover those overtime hours. Alternatively, review the staff roster to analyse where employees spend most of their time. Search for patterns and find ways to maximise employee productivity.
4. Insurances – do you have a broker, and are they seeking the best rate for you?
Insurance is the perfect example of an expense where you can shop around to find the best offer. Be sure to compare apples with apples, and only settle for what adequately covers your needs. I highly recommend using an insurance broker to review your circumstances. She or he should able to tell what’s most suitable for your business.
5. Is your advertising dollar working for you? Are you measuring your results?
Too often, I see business owners splashing money on advertising with no plan or measurement. Before agreeing to the next newspaper or radio ad, think about the return on investments. Also consider the volume of sales you need to generate to cover any advertising expense. Measure the contribution a given advertising program has on revenue and profits to find out if it’s even worth the investment.
6. Shop around for better deals, or consider asking existing suppliers for a discount.
When was the last time you evaluated your current service provider? How do they measure up against similar suppliers in the market? Although your preferred vendor offered you the best deal years ago, there might be cheaper and better options available now. Competition and innovation often drive down the prices of goods and services. Consider switching to another supplier that offers the best value for your money. But if you are happy with your existing supplier and wouldn’t want to switch, ask for a loyalty discount. Simply asking whether you are getting the best rate can lead to considerable savings over time.
7. Look for technology options that could save you time by creating efficiency.
We are very lucky to live in an era of great technological advances. And as these innovations are constantly evolving, they help reinvent our working process. Technological advancements can be adopted to streamline processes and free up employee’s time. Nowadays, many businesses get more done in the same amount of time.
What technology options can you use to improve business processes? Consider how you can systemise operations and maximise your business productivity using technology.
8. Save on printing costs.
As noted above, technological advancements cut down the cost of printing. There’s no need to print every single document in the office. For example, programs such as pdf writer allows you to complete forms directly on the computer. Meanwhile, an app called Docusign enables you to digitally sign documents, again without the need to print any document. All these and more could help your business save on printing-related expenses. Plus, there’s no need for massive storage space to file physical documents.
9. Review your subscriptions and other direct debits coming out of your bank account.
Do you manage recurring bills through direct debits? The benefit of direct debits from your bank account is that you can set and forget. This means you never have to worry about paying that monthly bill, thus ensuring your service remains constant.
The downside of using direct debits? It’s the same: you can set and forget, thus paying for an ongoing service which you are no longer using.
Check your bank statement for the last month and see whether you’re still using each of those regular subscriptions or direct debits. Set a regular schedule for an account review to ensure that you are only paying for services that you need.
10. Check your invoices.
We are all human. No matter how careful your suppliers may be, they can still make mistakes. So check your invoices to ensure that you are not being overcharged for a product or service.
You make a couple of small savings by asking for a discount from your supplier or reducing your printing costs. At first glance, these don’t seem like much. Yet remember that small amounts add up quickly, and can have a significant impact on the bottom line.
By reviewing your profit and loss statement on a line by line basis and carefully considering how you can make savings in each area of your business, you will go a long way to improving your profitability. At the very least, you will rest easy, knowing that you have fine-tuned your business overheads.